[Joint House and Senate Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
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FACTORIES AND FRAUD IN THE PRC: HOW HUMAN RIGHTS VIOLATIONS MAKE
RELIABLE AUDITS IMPOSSIBLE
=======================================================================
HEARING
before the
CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
__________
APRIL 30, 2024
__________
Printed for the use of the Congressional-Executive Commission on China
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available at www.cecc.gov or www.govinfo.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
55-563 WASHINGTON : 2024
CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA
LEGISLATIVE BRANCH COMMISSIONERS
House
Senate
CHRISTOPHER SMITH, New Jersey, JEFF MERKLEY, Oregon, Co-chair
Chair STEVE DAINES, Montana
JAMES P. McGOVERN, Massachusetts MARCO RUBIO, Florida
BRIAN MAST, Florida TOM COTTON, Arkansas
JENNIFER WEXTON, Virginia ANGUS KING, Maine
MICHELLE STEEL, California TAMMY DUCKWORTH, Illinois
SUSAN WILD, Pennsylvania DAN SULLIVAN, Alaska
ANDREA SALINAS, Oregon LAPHONZA R. BUTLER, California
ZACHARY NUNN, Iowa SHERROD BROWN, Ohio
RYAN ZINKE, Montana
EXECUTIVE BRANCH COMMISSIONERS
DANIEL K. KRITENBRINK, Department of State
MARISA LAGO, Department of Commerce
THEA MEI LEE, Department of Labor
UZRA ZEYA, Department of State
Piero Tozzi, Staff Director
Todd Stein, Deputy Staff Director
(ii)
C O N T E N T S
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Statements
Opening Statement of Hon. Chris Smith, a U.S. Representative from
New Jersey; Chair, Congressional-Executive Commission on China. 1
Statement of Hon. Jeff Merkley, a U.S. Senator from Oregon; Co-
chair,
Congressional-Executive Commission on China.................... 3
Statement of Hon. James P. McGovern, a U.S. Representative from
Massachusetts.................................................. 4
Statement of Hon. Thea Lee, Deputy Undersecretary for
International Affairs, Department of Labor..................... 7
Statement of Scott Nova, Executive Director of the Worker Rights
Consortium..................................................... 16
Statement of Adrian Zenz, Senior Fellow and Director in China
Studies, Victims of Communism Memorial Foundation.............. 19
Statement of Jim Wormington, Senior Researcher and Advocate on
Corporate Accountability, Human Rights Watch................... 21
APPENDIX
Prepared Statements
Lee, Hon. Thea................................................... 37
Nova, Scott...................................................... 39
Zenz, Adrian..................................................... 47
Wormington, Jim.................................................. 95
Smith, Hon. Chris................................................ 99
Merkley, Hon. Jeff............................................... 100
McGovern, Hon. James P........................................... 101
Submissions for the Record
Statement of Alicia Hennig, business ethics researcher and
interim professor at Technical University Dresden, Germany..... 103
CECC Truth in Testimony Disclosure Form.......................... 111
Witness Biographies.............................................. 113
(iii)
FACTORIES AND FRAUD IN THE PRC: HOW HUMAN RIGHTS VIOLATIONS MAKE
RELIABLE AUDITS IMPOSSIBLE
----------
TUESDAY, APRIL 30, 2024
Congressional-Executive
Commission on China,
Washington, DC.
The hearing was held from 10:03 a.m. to 11:54 a.m., in Room
2020, Rayburn House Office Building, Washington, DC,
Representative Chris Smith, Chair, Congressional-Executive
Commission on China, presiding.
Also present: Senator Jeff Merkley, Co-chair, Thea Lee,
Deputy Undersecretary for International Affairs, Department of
Labor, and Representative McGovern.
STATEMENT OF HON. CHRIS SMITH, A REPRESENTATIVE FROM NEW
JERSEY; CHAIR, CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA
Chair Smith. The hearing will come to order, and good
morning to all of you. I thank you for coming. Our hearing
today will give a very good look at so-called social audits by
companies whose supply chains originate in the People's
Republic of China, that cover up the existence of forced labor
in those supply chains.
Back in the early 2000's, I read a book called IBM and the
Holocaust: The Strategic Alliance Between Nazi Germany and
America's Most Powerful Corporation. I recall how shocked I
was--it was a very heavily footnoted book--how shocked I was at
the time--it revealed an American corporation's complicity in
aiding and abetting the Nazi regime, especially in tracking
down Jews for the concentration camps. As a matter of fact, in
the opening the writer talks about why the Gestapo always had
such good lists of Jews. Well, they got them from IBM. They
placed greed over concern for humanity and turned a willing
blind eye to the implications of their work.
Nor was IBM alone in this. Books had been written about the
ties the whiteshoe law firm Sullivan & Cromwell had with the
Nazis, for example. But I took some comfort in knowing that
that was in the past. Surely, if there was evidence today of an
evil regime's abuse of human rights--for example, the mass
scale detention of despised ethnic and religious minorities in
concentration camps, forcing them to toil as practical slaves
to produce goods for export--surely American corporations would
shudder and shun any complicity with that.
Fast-forward to today, however, and that is precisely what
we see, corporate complicity in the grossest of human rights
violations. Our hearing revealed, for example, how Thermo--this
was recently--Thermo Fisher Scientific, whose DNA markers have
been used by police in Tibet and the Xinjiang Autonomous Region
to compile databases of the DNA of millions of Tibetans and
Uyghurs, has also been implicated in the forced harvesting of
human organs. While Thermo Fisher Scientific may be the
corporation whose behavior most closely mimics that of IBM
before the beginning of the Second World War, our hearing today
focuses on those manufacturers, suppliers, importers, and
retailers whose supply chains in China are tainted by reliance
upon forced labor to achieve the lowest prices, yet who seek to
rely on social auditing companies to obscure and whitewash that
reliance.
We have known about corruption in the audit industry for a
long time. Back in July 2021, I chaired a hearing--and as a
matter of fact, Thea Lee was there representing the AFL-CIO on
this very issue. We also heard at that hearing from Li Qiang,
the founder of China Labor Watch, who testified as to the
audits. He said, not only are the audits conducted in China
ineffective, but he said that ``they are actually corrupt.'' He
went on through many examples of how auditors for corporations,
such as Apple, ignored unfavorable facts, such as with regard
to inadequate worker safety processes. He gave several examples
of the bribing of auditors so that auditors' reports would not
require the investment of millions in improving conditions in
factories and in plants.
Today, using the fig leaf that audits provide, corporations
seek to convince consumers, regulators, and perhaps even their
own consciences that their supply chains are clean and
compliant with U.S. law, including the provisions of the Uyghur
Forced Labor Prevention Act and section 301 of the Trade Act,
both of which prohibit the importation of goods made with
forced labor. In a nutshell, however, as our witness Scott Nova
will testify, ``social auditing in practice involves giving
unqualified people inadequate time to pursue an unrealistic
objective they have no incentive to achieve.''
In a country such as the People's Republic of China, where
independent labor unions do not exist, social controls prevent
the free exchange of information, and recently passed national
security laws make the disclosure of information that portrays
China in a bad light a national security offense, social audits
are particularly laughable But beyond aiding and abetting the
human rights abuses that forced labor entails, companies whose
supply chains are tainted also undercut American manufacturers
at home, just as the textile industry whose ability to produce
quality goods at an affordable price is undercut by importers
who drive costs down by essentially using slave labor.
Such labor may come from prisons in the Chinese laogai
system, or from Uyghurs detained in so-called vocational
skills, education, and training centers, or otherwise assigned
by Poverty Alleviation Through Labor Transfer programs, to toil
elsewhere in China. These corporations profit from the sweat of
the brow of Uyghurs and other labor abuse victims in China,
while beggaring their fellow Americans seeking to earn a decent
wage in factories in the United States.
I look forward to our distinguished witnesses today
exposing the deception inherent in the use of social audits to
whitewash corporate complicity in labor rights abuses. I would
like to receive input on regulatory legislative gaps that they
think we might plug. We also hope to hear their thoughts on--
particularly--the enforcement of existing legislation,
including the UFLPA. Also, I'd like to suggest that our
securities laws, in particular our 1934 Securities Exchange
Act, and Rule 10b-5 promulgated under it, be put to greater
use. That rule, as people are aware, prohibits any untrue
statement of material fact, as well as any omission of material
fact.
As we go through annual reports and offering statements of
publicly traded companies, we should ask whether they are
disclosing to their shareholders and potential shareholders
that their supply chains may indeed be compromised by forced
labor in violation of U.S. law. Are they disclosing the
potential loss of goodwill and harm to reputation when it is
revealed that a company is benefiting from forced labor in
their supply chains, to the detriment of their share price? To
date, many corporations seem to be relying on these social
audits to shield themselves from potential liability--social
audits which today's hearing alone, with the good work done by
several of our witnesses, shows to be works of near fiction
when it comes to accurately portraying the State of labor in
the People's Republic of China.
Compliance departments, please take note--as well as the
law and accounting firms that sign off on corporate
disclosures: Following this hearing, I intend to write to the
Securities and Exchange Commission, and I invite my
commissioner colleagues to join me, to ask that they review
disclosures by publicly traded companies to assess whether they
contain any material misstatements or omissions with regard to
forced labor in their supply chains. And if they do, to take
enforcement action against them, levying fines.
While the SEC proposed rules in May 2022 to clarify how
investment funds can adhere to voluntary environmental, social,
and governance standards--this is another fig leaf used by
corporations to signal their virtue to consumers--these remain
untethered to the objective criteria. That is only a tentative
step which emphasizes the `E' in ESG, and is addressed to
investment funds doing little to confront the issue of forced
labor in supply chains. Further, if corporations are not
policing themselves, and the SEC is slow in responding, then I
hope the plaintiff's bar will help discipline these companies
seeking to recover any loss in shareholder value that results
from regulatory action and exposure of corporate audit-
washing.
Finally, I would anticipate a future hearing wherein we
invite auditing companies, such as the Loning Company,
implicated in the Volkswagen scandal that we will hear about
shortly. Whistleblowers in lowest-price retailers such as
Walmart would also be asked to testify. I'd now like to turn to
Co-chair Senator Merkley.
STATEMENT OF HON. JEFF MERKLEY, A SENATOR FROM
OREGON; CO-CHAIR, CONGRESSIONAL-EXECUTIVE COMMISSION ON CHINA
Co-chair Merkley. Thank you, Chairman Smith, for this
hearing. For two decades, this Commission has reported on how
the Chinese government's failure to provide basic human rights
protection has had a detrimental effect on the lives of people
living in China. Today we're focusing on the fact that this
same lack of protection has a negative impact on American
consumers. It's not a new story. We've known for years that
substandard worker rights and lack of transparency in China has
resulted in defective imports, such as lead-based toys used by
American children.
Our first witness, Deputy Undersecretary Thea Lee--we're so
pleased to have her--serves as a member of this Commission and
is a longtime expert and champion on this issue. Four years ago
this Commission, based on research of another of our witnesses,
Adrian Zenz, and others, published a report showing how
products made with the forced labor of Uyghurs and other Turkic
people in China were coming into the United States. The fruit
of this research was the Uyghur Forced Labor Prevention Act,
which banned imports of such goods and helped spark a much
wider awareness of the need to rid our supply chains of forced
labor.
Key to the effort to know whether a supply chain is clean
are the audits performed on the companies who are part of that
chain. In 2021, the Biden administration issued the Xinjiang
Supply Chain Business Advisory, which assessed that ``in and of
themselves third-party audits are not a sufficient due
diligence program and may not be a credible source of
information for indicators of labor abuses in the region.''
With the enactment of our Uyghur Forced Labor Prevention Act,
this warning has become a hard reality for companies importing
from China.
They now have to provide ``clear and convincing evidence''
that their products were not made with Uyghur forced labor.
This is the core question for today's hearing. Are the audits
that importers cite to meet the law's standard reliable? Do
they have integrity? Are they genuine? Are reliable audits even
possible in an environment where the Chinese government does
not allow workers to speak freely, harasses auditors conducting
due diligence in Xinjiang, and prevents auditors from obtaining
information needed for their job? If a company cannot say with
precise certainty to our government and to its shareholders,
and most importantly to American consumers, that its products
do not contain forced labor, then it needs to stop doing
business there.
Let's remember that our aim is not to punish companies
simply for doing business in China. Our goal is to improve the
human rights situation in China so that businesses can certify
that their supply chain is free of forced labor and that their
suppliers provide good working conditions and wages to their
workers. And we ask these companies to partner with us in
working toward that goal. We have an impressive set of
witnesses and I look forward to hearing their analysis and
their recommendations. Thank you, Mr. Chair.
Chair Smith. I'm very pleased to welcome our Ranking
Member, Representative McGovern. Thank you.
STATEMENT OF HON. JAMES P. McGOVERN,
A REPRESENTATIVE FROM MASSACHUSETTS
Representative McGovern. Thank you very much. And I
apologize in advance. I'm in between two hearings at once. But
I want to wish everybody a good morning and I join my
colleagues in welcoming our witnesses and the public to today's
hearing on audits and certifications of supply chains in China.
This hearing continues the work that the Congressional-
Executive Commission on China has done to shine a light on the
use of forced labor by the People's Republic of China and to
ensure that Congress is doing everything it can to bring an end
to the practice. We are motivated by the terrible toll of
forced labor on those subjected to it, especially the Uyghur
people in Xinjiang, and by its impact on Americans. U.S.
consumers should not have to worry about whether the products
that they purchase are tainted by forced labor from China. U.S.
workers and producers should not have to compete with companies
that rely on forced labor.
Congress took a major step in 2021 by passing the
bipartisan Uyghur Forced Labor Prevention Act, legislation I
was privileged to lead. The UFLPA creates a rebuttable
presumption that all goods produced in the Xinjiang region of
China are made with forced labor. This means the burden of
proof lies with those who want to import goods into the United
States to show that their supply chains are free of forced
labor. The logic behind the law was that it would create
incentives for stakeholders, including the PRC, to change their
practices.
The good news is that companies have responded by
implementing their economic, social, and governance, or ESG,
policies in contracting social compliance audits to certify
that the supply chains for their products are free of forced
labor. The problem, as we will hear today, is that even when
these audits conform to industry-wide ESG standards, they may
not be reliable in the Chinese context. This is both because
the companies themselves pay for the audits and have a
financial stake in clean findings, and because the PRC, instead
of correcting course and ending the use of forced labor, has
chosen to retaliate against those who do the audits or who
cooperate with them.
I want to be clear on this point. The PRC government could
react to the worldwide concern that has been raised about its
use of forced labor by taking the opportunity to end the
practice, which by the way, would be consistent with its
obligations under International Labor Organization conventions,
all of which China has ratified. Instead, the PRC has taken
steps like shutting down the offices of Shenzhen Verite, the
Chinese affiliate of the social auditing firm Verite, which is
based in my district, reportedly because the company was being
a little too accurate about Uyghur forced labor and supply
chains.
Since 2021, the PRC has adopted laws, regulations, and
practices that seem designed to limit the effectiveness of
social audits in detecting the presence of forced labor in
supply chains. One example is an anti-foreign sanctions law
that has been used at least once to go after a U.S. due
diligence firm for collecting Xinjiang-related sensitive
information. A second is a broadened definition of espionage
that came into play when PRC authorities detained staff at
another due diligence firm that was reported to be conducting
investigations on forced labor and supply chains linked to
Xinjiang.
Out of 29 firms listed by Social Accountability
International as qualified to conduct certification inspections
of manufacturers in China, five have announced they will no
longer conduct social audits in Xinjiang because conditions
simply do not allow them to do so. In light of this, our
question today is, what more can Congress do to help to
reinforce the incentives in the UFLPA? Are there steps we could
take to strengthen the integrity of auditing mechanisms and
make them more independent? Are there other ways to foster
increased transparency of supply chains that do not backfire on
those who try to do the right thing?
So let me just close by emphasizing that we are not here to
force companies to leave China. Our consistent goal is to help
improve the human rights situation in China. But there is a
possibility that the PRC's response so far to the global
condemnation of its use of forced labor could lead companies to
decide on their own that it is just too risky to do business in
China, because the lack of human rights protection doesn't
allow them to reliably comply with their own ESG policies. And
with that, I thank the chairman for giving me the time, and I
yield back.
Chair Smith. Thank you. I'd now like to welcome our very
distinguished witness, Deputy Undersecretary for International
Affairs at the Department of Labor Thea Lee, who is no stranger
to this Commission, and has been a leader for decades. I
remember when you were at the AFL-CIO, and your testimony was
brilliant, back in July 2012. You pointed out that section 301
is useless if you don't use it, and pointed out that, at the
time, the Bush administration twice rejected requests, which I
and others had all supported, to use it. You know, one of the
things that I am is nonpartisan when it comes to human rights.
To speak out no matter who was in the White House. It doesn't
matter. Well, the Bush administration dropped the ball big-
time. And you pointed it out in your testimony back in July
2012. So thank you. We need to use all the tools. And as you
said, if there's a tool but it's not used, what good is it?
You've been advocating for worker rights both domestically
and internationally for over 30 years, president of the
Economic Policy Institute--a pro-worker Washington think tank--
from January 2018 to May 2021, and an international trade
economist at EPI in the 1990's. From 1997 to 2017, Deputy
Undersecretary Lee worked at the AFL-CIO, the voluntary
federation of 56 national and international labor unions that
represents 12.5 million working men and women. At the AFL-CIO
she served as deputy chief of staff, policy director, and chief
international economist.
She served on the State Department Advisory Committee on
International Economic Policy, the Export-Import Bank Advisory
Committee, and on the board of directors of the National Bureau
of Economic Research, the congressional Progressive Caucus
Center, the Center for International Policy, and the Coalition
on Human Needs, among others. She served on the U.S.-China
Economic and Security Review Commission from 2018 to 2020. And,
happily, in 2022, you were appointed to this Commission. And
we're so glad to have you. Ms. Thea Lee, the floor is yours.
STATEMENT OF HON. THEA LEE,
DEPUTY UNDERSECRETARY FOR INTERNATIONAL AFFAIRS,
DEPARTMENT OF LABOR
Secretary Lee. Thank you so much, Chairman Smith, Co-chair
Merkley, honorable members of the Commission, for inviting me
here today and also for holding this very important hearing. I
am honored and thrilled to be here.
I head the International Labor Affairs Bureau at the
Department of Labor. It plays a pivotal role in promoting and
protecting workers' rights worldwide by advocating for
international labor rights and protecting them, including the
right to organize, bargain collectively, to have safe working
conditions, and to be free of child labor, forced labor, and
discrimination. ILAB contributes to creating a more equitable
global labor landscape.
The issue of factories and fraud in China is multifaceted,
with significant implications for human and labor rights and
the integrity of our global supply chains. Today I will address
two related issues. First, the challenges and risks for
businesses of using social compliance auditing as a definitive
assessment of labor conditions in general. And second, the
heightened risks given the ongoing human and labor rights
violations in the Xinjiang Uyghur Autonomous Region of making
reliable audits in the region impossible.
Social auditing can be a useful tool to assess compliance
at a particular point in time, but it cannot be the only
mechanism for detecting labor rights violations and abuse. As
we will hear more about today, audits are often announced in
advance, giving managers time to prepare the facility. Managers
can easily, and do, fake timesheets to skirt pay and overtime
laws. And workers may be pressured to provide inaccurate
information. To be effective, social auditing should be part of
a comprehensive social compliance system that ensures that
unions, democratic worker organizations, and other worker
representatives, provide support and voice for workers to
identify and raise concerns and collectively advocate for their
rights and interests without fear of retaliation.
ILAB's tool, Comply Chain, provides examples of best
practices in this area. Worker voice and the ability to freely
express concerns are essential. When authentic worker voice
exists, workers can freely elect their union representatives,
identify problems, negotiate agreements, and hold parties
accountable. ILAB recently commissioned Penn State University
to provide a report, ``Worker Voice: What It Is, What It Is
Not, and Why It Matters.'' I recommend this report to all of
you. It provides important insight on why legitimate authentic
collective worker voice is critical to ensuring social
compliance. And it provides six elements that we need to look
for.
It's clear that effective worker voice is impossible when
workers are trapped in state-sponsored forced labor, where
there are no independent democratic unions--as Chairman Smith
mentioned--and where workers continue to face threats and
reprisals. This is the situation we face in China. There are
widespread restrictions and repression of freedom for human
rights defenders. There is not just a lack of civil society
presence--rather the entire civic space has been shut down. In
Xinjiang in particular, ethnic minorities live in fear of the
Chinese government. Any audit occurring in Xinjiang cannot be
conducted without government oversight, making objective worker
interviews free from reprisal an impossibility.
As the U.S. Government highlighted in the Xinjiang Business
Advisory published in 2021, updated in September 2023, as
Senator Merkley mentioned, auditor interviews with workers
cannot be relied upon, given pervasive surveillance, the threat
of detainment, and evidence of workers' fear of sharing
accurate information. And we have heard that auditors have been
detained, harassed, threatened, or stopped at the airport. This
is why dozens of major audit firms have not operated in
Xinjiang for years. The fear of reprisal for both workers and
auditors remains high. Social audits in China should not be
seen as an authoritative source for companies reflecting on-
the-ground human rights conditions. The business community
needs to be aware that any audits and, frankly, any business
operations undertaken inside China, carry heightened labor and
human rights risks.
In conclusion, ensuring that workers have a substantive
role and voice in social compliance is essential to make social
compliance audits legitimate. Without workers' feedback, input,
and support in resolving issues, labor exploitation risks in
supply chains around the world will unfortunately persist. The
Department of Labor is proud to serve on the Forced Labor
Enforcement Task Force to support implementation and
enforcement of the Uyghur Forced Labor Prevention Act. The
UFLPA is a powerful tool to address egregious human and labor
rights abuses and to ensure that U.S. workers and businesses
have a level playing field. We will continue to leverage that
tool to protect the integrity of lawful trade, the rights of
workers, and continue to raise these issues and call for
change.
I thank you for your attention, and I look forward to the
rest of today's hearing.
Chair Smith. Thank you very much, Ms. Lee. And again, thank
you for your decades of very effective advocacy for worker
rights around the globe, including in China.
Would you tell us what a good worker-driven social
compliance program might look like? Can you tell us more about
what ILAB means by worker voice? And while you're answering
that--we all know, I think, in this room that there is no
independent labor union in China. But I'm amazed sometimes when
I hear, in talking to members of the business community, how
they have a labor union--run by the Chinese Communist Party, of
course.
And, I mean, it's such a surface appeal argument that's
used to suggest that somehow they're looking out for the rights
of their own people. And we know for a fact, based on even the
reporting we get out of China itself, that occupational hazards
and deaths and maiming and loss of limb is very high--and it's
grossly underreported. But there's no independent voice ever.
It's always whatever the Chinese Communist Party wants us to
see. So if you could maybe address those couple of issues.
Secretary Lee. Thank you so much, Chairman.
So what should a good worker-driven social compliance
program look like? Of course, it would be based on
international standards, the International Labor Organization
Fundamental Principles and Rights at Work. But also, the key
thing--what I mentioned earlier--is that workers and their
organizations have to be directly involved in the creation, the
negotiation, and the implementation of any social compliance
program, because that's where the trust comes from. And, you
know, I think one of the issues that we will hear about more
today is whether workers feel comfortable coming forward and
telling the truth. If you sit a worker down in the middle of a
factory and say, are you working voluntarily, they're in the
spotlight and they know that the auditor is going to leave. But
the union doesn't leave. The union is there, 24 hours a day, 7
days a week. It has the trust. It's also cheaper than a social
auditing program.
The third piece is that these provisions cannot be optional
or voluntary, because we know that doesn't work. So the best
practice is binding and enforceable agreements between brands
and their suppliers, to which workers are also a party. So
we've seen this work around the world, the Dindigul Agreement
in India was an agreement between the Tamil Nadu Textile and
Common Labour Union, a union of Dalit women workers in India,
but also H&M, Eastman Exports, and civil society organizations,
and the government got involved. That played a critical role in
modifying the withhold release order against Natchi Apparel, a
garment maker owned by Eastman Exports, that had a record of
systemic physical and sexual violence in the workplace, an
indicator of forced labor. So work organizations came to the
table with the brands and were able to negotiate an agreement
that made a significant change and actually lifted a trade
measure.
And finally, companies need to give space and capacity for
suppliers to have the financial incentives for compliance. A
lot of what this means is they need to pay a fair price to
their suppliers. They have fractured their supply chains
deliberately. And then if they pay too low a price and then
hire an auditor to review the conditions, that's a little bit
disingenuous because they're paying nothing and they're saying
the workers should be treated well. And those two things don't
go together. So that's, I think, one of the things that the
companies need to do.
I'm happy to talk just a little bit more about the Worker
Voice Project that we asked Penn State to do for us. And there
are six components that we have found. And I think these are
really useful. This is all on our website. First is elect. That
workers have to be able to elect leaders free from interference
by employers or the government.
The second is represent. Workers need to know their rights.
They need to be engaged and mobilized. Elected leaders have to
be accountable to their members and be responsible for
consulting with them.
Inclusiveness, so that worker organizations need to make
sure--including the leadership--that they are representing the
full breadth. So, for example, if a union says, Well, we're not
representing the migrant workers or the people who speak a
different language or who come from a different place, then
they're not doing their job. So real worker voice includes
inclusive leadership.
Protect. Workers have to be protected from retaliation when
they speak up, including protection from losing their jobs, or
deportation. or facing abuse, including harassment, threats,
violence, and coercion.
Enable is the fifth one. Workers need to have the time and
space to organize and engage in their union business and the
training information to fulfill their rights.
And empower. They have to be empowered by the labor laws,
have the ability to pursue lawful action, including strikes,
and have access to effective mechanisms to file grievances. So
I think those six elements are very helpful.
And just briefly, in terms of the question you asked about
unions in China--I had some experience when I was working for
the AFL-CIO. I was able to go visit a company. And it was a
big, big name American company, or international company. It
had 23,000 workers. And I was taken around. It was not an
investigation. It was just a visit. Talking to the managers.
And they had social auditors in there every week, Phillips Van
Heusen, Ralph Lauren, very fancy brands. So they were very used
to having people come in. And I asked, do the workers have a
union? And there was a back and forth, the translation took
about 10 minutes because they were trying to explain to the
guy, like, what's that? And finally, he said, oh, you mean the
Happy People Committee? And I was like, well, I guess. And he's
like, Oh, yes, we have that. We have a Happy People Committee.
And they go on shopping excursions and so on.
But the fact that there were social auditors in this
factory every week, every day, and none of them had asked that
question, when all these companies had in their code of conduct
freedom of association. So, you know, when a company operates
in China, it knows it doesn't have--the workers do not have the
ability to have an independent democratic organization, because
it's not allowed. The law of the land--the empower piece of the
worker voice--isn't there. So I think it's an essential piece.
And really, any authoritarian, repressive government can't
tolerate independent democratic unions, because they are a
threat to authoritarianism. But that's why they're so
important. And that's why I think it's right that we lift that
up when we have this conversation about the failings of social
audits. Thank you.
Chair Smith. Just to ask you, are there any examples where
workers have spoken candidly to the auditors, and have been
retaliated against? And what response did the auditors take?
Did they keep it all internal? Do they go public with it? Do
they hear things that could make a difference if they would
just speak up?
Secretary Lee. That's an excellent question, Chairman. And
I think probably it happens every day that workers say things,
and the auditors can leave and the workers can lose their job.
I don't think it's that easy for the auditors even to find out
if there's been retaliation after they're not on the premises
anymore. Do they go back and say, Whatever happened to Joe and
Sally? Are they still working? Did they get a raise? Did they
get put on the night shift, and so on? And I think that's one
of the weaknesses of the social audit--that unlike a union, the
social audit parachutes in, parachutes out, and doesn't have
the ability to have that constant piece. So I think,
unfortunately, sadly, it's something that happens all the time.
And maybe it's something also where workers anticipate that
there will be trouble, even if--they can't imagine that they
can answer that question honestly. And so they do not, because
they are looking to avoid trouble.
Chair Smith. When workers are interviewed in small groups
or even alone, how are they picked by these auditors? You know,
if it's done randomly, you'd say, Okay, there's some validity
to that. But then I could see a worker saying, Oh my God, I've
got a target on my back as I walk out the door. As you said,
there's surveillance everywhere. And nothing is between them
and the auditor. It's between them and the Chinese Communist
Party. I mean, how can we expect any kind of good outcome from
this? I went back and reread some of the testimony from July
2012. And it's like, we're--it's deja vu. We're right back
where we were, in a very real way. Maybe it's even worse,
because we kid ourselves that somehow we're making progress.
I'm not talking about the work you're doing. It's great.
But I'm talking in terms of what these corporations are doing.
I mean, I'm for card-check here. I know how the management can
intimidate even here, in the United States of America. But
there are ways of coming back, forming and creating a union
that then has their backs. There's nothing like that. And
finally--and then I'll yield to my good friend the co-chair--
the ILO. Have they been aggressive in promoting free trade
unions and worker rights? You know, the six points you've
pointed out are the prescription for exactly what needs to be
done. Does the ILO really engage? Or do they just put out a
report here and there?
Secretary Lee. A lot of excellent questions. In terms of
how workers are chosen, I think too often sometimes handpicked
workers are chosen by management, that the management knows
will give the right answers. And in other cases, I'm not so
familiar with the auditing processes to know exactly how
they're done, but I think the best practice, I know from my
days as a board member of the Worker Rights Consortium, is to
do off-premise interviews, so that management's not breathing
over your shoulder and looking at you and keeping track of
everything. But of course, that's not possible in Xinjiang, as
we've talked about. There's no possibility of saying, We're
going to go to workers' homes, we're going to talk to workers
after they get back from their fishing trips, and so on.
In terms of the ILO--the International Labor Organization
is an extraordinary organization. And it's tripartite, as you
know. So it has representation of governments, workers, and
employers. And sometimes that means it can move slowly in
seeking consensus, but our experience is that the ILO has been
a very valuable partner in a lot of parts of the world because
it provides the credibility and the authority in terms of
judging whether a country's laws are in compliance with ILO
international standards or not, and also has been a valued
partner to us in implementing technical assistance in many
countries around the world.
Chair Smith. Senator Merkley.
Co-chair Merkley. Thank you, Mr. Chairman. And thank you,
Deputy Secretary. We really appreciate your breadth of
experience here. When we started to highlight the issue of
slave labor in China, China could have responded by changing
their practices, but they didn't respond that way. They
responded with a series of laws that make it hard to collect
information. And as I understand it, they passed in 2021 the
PRC Data Security Law, they passed the Anti-Foreign Sanctions
Law, they passed amendments to the Counterespionage Law 2 years
later. And just to give a few examples, in December 2023, they
put sanctions on a company for collecting--an American
company--for collecting Xinjiang-related sensitive information.
In March of 2023, under the counterespionage law, they detained
employees of Mintz Capital who were investigating the use of
forced labor.
So essentially, based on everything that you have mentioned
and the application of these additional laws, U.S. companies
have this challenge in which, if they follow U.S. law to really
get the information they need to make sure they don't have
forced labor, then they're in violation of Chinese law. And if
they don't do it, they're in violation of American law. And so
it seems like under the current conditions described, this is a
situation where the company can only really remedy by moving
their supply chain out of Xinjiang. Is that where we ended up
in all of this?
Secretary Lee. Thank you, Senator Merkley, for that
excellent question. And I think at the end of the day, that is
the message from the business advisory, the U.S. business
advisory in 2021 and 2023, that since you cannot do due
diligence in Xinjiang or with Xinjiang workers, then you cannot
responsibly operate there. And that would be my advice to
companies, and I think that, of course, is the genesis of the
Uyghur Forced Labor Prevention Act. It is impossible to do due
diligence under those conditions, where it has been made
essentially illegal by the Chinese government. If it is
impossible to do that, then the only responsible thing to do is
not operate in that atmosphere. And hopefully, I think as all
the members of the Commission have said today, the goal is to
bring about the change, is to convince the Chinese government
to stop these practices.
Co-chair Merkley. So let's take it to a second point, which
is when essentially workers from Xinjiang are taken and
transported to other factories, is that--say they're
transported a significant distance outside of Xinjiang. In
other parts of China outside of Xinjiang, is it possible to
conduct audits in a more effective manner?
Secretary Lee. I think the labor transfer program, as you
say, has been growing. It is a significant problem. It is also
covered by the Uyghur Forced Labor Prevention Act. And it is a
means both to circumvent some of the protections in Xinjiang
and also to depopulate Xinjiang. So I think that the labor
transfer program presents significant challenges. I have not
seen an effective way to address the challenges of monitoring
the labor transfer program workers outside of Xinjiang.
Co-chair Merkley. Is it possible to determine whether your
subcontractor is using transferred labor?
Secretary Lee. It ought to be possible, but it's very
challenging. It's very difficult. And I know that on the Forced
Labor Enforcement Task Force, we've faced a lot of trouble
trying to get verifiable information about the labor transfer
programs. There's information that's sometimes provided on
Chinese websites, and then it disappears. And a lot of that
information is not as fresh as we'd like, because there isn't
the access. There is not the free access inside of China to
workplaces, to workers, to be able to assess effectively who
the workers are and where they've come from.
Co-chair Merkley. You mentioned a tool, which is binding
agreements with suppliers--between a company and suppliers. But
how does that solve this problem, if we can't really audit
what's really going on with that subcontractor?
Secretary Lee. I think the enforceable brand agreements
require that workers be able to have a voice and sit at the
table. And that, I don't think, is possible at this moment in
China. It's possible outside of China, and we've seen it--the
Bangladesh Accord, the Pakistan Accord, the Dindigul Agreement.
And there are other sorts of nascent examples of this. Also,
the government can't be hostile to the enforceable brand
agreement. In many cases, like the Dindigul Agreement, the
government has been a partner with the businesses and with the
union in putting something together. And so that would be an
essential element.
Co-chair Merkley. One effect of the forced labor agreement,
or the bill that Marco Rubio and I really championed in the
Senate, was to essentially encourage companies, because of
these situations, to find alternative supply chains in other
countries. We thought that perhaps as that starts to happen
that would send a message to the Chinese government, and they
might say we want to retain these companies, factories, in
China. We might see a change in practice. Has there been any
sign that as companies seek to get alternative production
sites, China might be reconsidering the way it conducts
business?
Secretary Lee. I think it's early to say, but I think our
experience with some of this is that a lot of those decisions
are going to happen in a very closed way. Like, for example,
with South Africa and apartheid. You know, during a lot of the
period of agitation and activity and divestment from South
Africa, the message from the outside was, the South African
government doesn't care, you're just hurting the people you're
trying to help. But at some point, it becomes untenable for the
government to proceed.
And my hope is that that is the direction we are going.
We've seen that there has been production diverted outside of
China. I think also with the European Union moving in the
direction of putting in place their own forced labor import ban
and their own mandatory due diligence, which just happened last
week, that you're going to see increased pressure on China from
other markets. And that's something that I think we've talked
about before. Canada and Mexico have also instituted forced
labor import bans. As other countries come on board, Australia
and other countries are looking at this, I think it becomes--at
some point it becomes untenable for the Chinese government to
continue business as usual.
Co-chair Merkley. I'm out of time now, but I'll mention two
things. One, I'd like to follow up with further questions in
written form about the Comply Chain Initiative from the
International Labor Affairs Bureau and how that fits into this.
Second of all, I was just up in Canada on the plastics treaty
in Ottawa and was having conversations with Canadian officials
about them joining us. Because right now, a lot of products
that are turned down in the U.S. are shipped across the border
into Canada, which is an escape valve that makes it much less
effective. But I think this Uyghur Forced Labor Prevention Act
is really a milestone in trying to take on horrific labor
practices and terrible human rights violations by China. I hope
we can keep pushing to make it more effective.
Secretary Lee. I agree with you. And I thank you for the
work that you did to implement the Uyghur Forced Labor
Prevention Act. And just one quick thing--with Canada, ILAB and
Canada and Mexico are carrying out trilateral training and
technical expertise exchanges with respect to the Forced Labor
Import Ban. We brought our customs, trade, and labor officials
together from the three countries repeatedly for several
workshops that I think have been very valuable. So we are
definitely looking to strengthen the ability and the capacity
of both Canada and Mexico to enforce their own laws.
Co-chair Merkley. Great. Thank you.
Secretary Lee. Thank you, sir.
Chair Smith. Thank you, Senator.
Just a final question. I chaired a couple of hearings on
the growing use of forced labor to mine cobalt out of DR Congo.
And in the past, I've been to Goma. I've been to places where
this occurs. But not recently. But we know from our hearings
that it's something like 25,000 to 40,000 children are being
exploited in those mines, and about 200,000 adults. It's all
going to China. China is running the mines. And you know, in my
opinion, if somebody wants to buy an EV or--that's all up to
them. But it should not be on the backs of little African
children who are being hurt, and some killed, as they are
mining this.
Now, are you aware of any auditing that is occurring--I did
ask Secretary Kerry this when he was still the czar for green
initiatives. And he said there's an MOU that they're working
up, or have worked up. And I've seen it. And to me, it's all
aspirational. It doesn't have any teeth whatsoever with DR
Congo--if you're going to mine it, process it there. Don't send
it to China, where they perhaps again use forced labor or
anything but free workers to process it.
And I'm wondering if there's been any audits of that
industry, the cobalt industry? Especially since we know without
any doubt that there's exploitation in the extreme occurring as
it's mined by China, and then it ends up in our showrooms, you
know, in our car showrooms. Is it being audited by anyone?
Secretary Lee. Thank you for that question, Mr. Chairman.
And it's actually--ILAB has a project that is trying to trace
the cobalt from the artisanal mines all the way through the
production process. It's been a little bit challenging. We are
working closely with the Ministry of Mines and the Ministry of
Labor in the DRC. It's difficult. And as you say, for the exact
reasons that you say, that both the commingling of the
artisanal cobalt mines and the industrial mines--they're right
next to each other sometimes. And they are by design sold to
the Chinese processors and they go to China for processing.
It's very difficult to separate that out.
We have several projects going in the DRC on exactly this
issue, because we consider it very urgent and very serious. So
we are working both with children and communities and their
families. We're working with the labor inspectorate. We are
supporting them in getting more training and more resources.
And in fact, the DRC labor ministry has moved to hire 2,000
inspectors and administrative officials to improve their labor
inspection system, which is a huge start. It's pretty amazing.
But they have not had any capacity whatsoever to do the labor
inspections in the main mines.
So I think we're working very slowly in that direction. And
I know there are also efforts to do more of the processing in
the DRC, which they aspire to do--they would like to do. And
that would solve one element of the problem. So I agree with
you that this is a very serious issue. And we are doing
everything in our power both to get more transparency and
information, but also to build some capacity among the key
players there.
Chair Smith. I would respectfully ask if you could take a
look at two bills that I've introduced. One would provide a
rebuttable presumption with regard to the cobalt, and if it's a
clean supply chain then, you know, have it come here. But I
believe it is so egregiously tainted that there's no way that
can be done. Second--so that's the first bill. That has not
moved. The second bill has moved. The Ways and Means marked up
my bill to create a strategy and do some other things vis-a-vis
the cobalt industry in China and DR Congo. And that was marked
up in the Ways and Means Committee last week.
So I would ask if you could take a look at it, provide any
insight you have. Hopefully, the support of the administration,
because we know, even when things pass here they very often
have a rough road in the Senate. And, you know, from my point
of view, having had those hearings, having heard from witnesses
about not just the kids that are exploited, but also the
adults. They're not being paid. They're getting sick. They're
often going into the mines without appropriate protection gear.
And they're being worked by the Chinese Communist Party, who is
overseeing all the mines. You know, and 70 percent of all the
cobalt is coming from there. So it's very, very serious. And I
think we've got to really get ahead of this one.
Finally, I'll just say--please take a look at those. Scott
Nova, executive director of the Worker Rights Consortium, who
will be speaking, said: Social auditing in practice involves
giving unqualified people inadequate time to pursue an
unrealistic objective that they have no incentive to achieve.
What a paragraph, or what a sentence! Do you agree with that?
Secretary Lee. Yes.
Chair Smith. Thank you. I really appreciate your testimony.
And I look forward to hearing from you on the other bills.
Thank you.
Secretary Lee. Thank you so much, Mr. Chairman.
Chair Smith. I'd now like to welcome our second panel. And
thank you, Undersecretary Lee.
Beginning with Scott Nova, who is executive director of the
Worker Rights Consortium, an independent labor rights monitor
organization that has conducted investigations of working
conditions in factories around the globe, including in China,
Vietnam, Myanmar, and other countries where severe restrictions
on civil society pose special obstacles to labor rights
inquiry. Mr. Nova is a leading expert on the aspects of labor
rights investigations and on the practices and performance of
corporate social auditors. He has written and spoken widely on
the intersection of international commerce and worker rights.
I'm really happy to have him here, as well as our other
witnesses.
Adrian Zenz--Dr. Zenz is the Director of China Studies at
the Victims of Communism Memorial Foundation here in
Washington, D.C. His research focuses on China's ethnic policy,
Beijing's campaign of mass internment, securitization and
forced labor in Xinjiang, and public recruitment and coercive
poverty alleviation in Tibet and Xinjiang, and China's domestic
security budgets. Dr. Zenz is the author of Tibetanness Under
Threat. He has played a leading role in the analysis of leaked
Chinese government documents, including the China Cables, the
Karakax List, and the Xinjiang Papers, and the Xinjiang police
files.
Then we will hear from Jim Wormington, who is senior
researcher and advocate of the economic justice and rights
division at Human Rights Watch, where he works on extractive
industry supply chains and other issues related to corporate
accountability. He was previously a researcher in Human Rights
Watch's African division covering human rights issues in West
Africa. He is an English-trained barrister, a member of the QEB
Hollis Whiteman Chambers, and was educated at Cambridge and New
York University of Law. He recently coauthored the report,
``Asleep at the Wheel: Car Companies' Complicity in Forced
Labor in China.''
I'd now like to turn the floor to Scott Nova.
STATEMENT OF SCOTT NOVA,
EXECUTIVE DIRECTOR OF
THE WORKER RIGHTS CONSORTIUM
Mr. Nova. In assessing the validity of labor auditing
schemes in China, it is necessary to bear in mind the checkered
history of such schemes globally. So-called social auditing has
public relations value to corporations keen on convincing us
they're operating their supply chains responsibly but has often
been of little value to workers.
The examples of social auditing failures are voluminous and
tragic. The worst factory disaster in human history happened in
Bangladesh in 2013 when a building collapsed and killed 1,100
garment workers. The building had been repeatedly inspected by
social auditors working for Western brands. So had the dozen
other garment factories in the country, where workers died en
masse in fires and structural failures over a period of years
due to egregious safety deficiencies. These factories were
death traps before they were audited. They were death traps
after.
Examples of the failure of social auditing can be found in
every industry and in any country. Among the most notable is
the long history of auditing failures at Foxconn, Apple's
primary supplier in China. Among the grim consequences were
worker fatalities from easily preventable explosions, tens of
millions of dollars in stolen wages, and inhumane conditions
that led to a rash of worker suicides. These failures are the
product of flaws inherent in auditing systems.
For corporations to claim that their auditing schemes
provide a meaningful umbrella of protection, these schemes must
be comprehensive with regular inspection of thousands of
production facilities across the supply chain. The only way to
conduct thousands of inspections annually at a cost considered
affordable by corporations seeking to produce as cheaply as
possible is to assess hundreds of compliance standards, even at
the most massive facilities, in one to 2 days. Such inspections
are superficial by necessity.
So what are the skills of the auditors? In the U.S. we have
numerous different regulatory agencies responsible for the
enforcement of labor laws within each or multiple categories of
specialists. This is typical of regulatory systems because of
the extensive expertise required to handle each specific issue.
Social auditing systems ask each auditor to handle every
applicable standard. Each is a jack of all trades, a master of
none, carrying out specialized tasks without specialized
training.
How did thousands of audits in Bangladesh miss the hazards
that threatened workers' lives? Because the auditors had no
training in identifying such hazards. This didn't stop the
firms they worked for from issuing the factories a passing
grade. Even more problematic are the conflicts of interest
inherent in the system. U.S. corporations don't produce in
China or Guatemala to uphold labor rights. They do so because
it's cheap. Since it costs more to produce under good
conditions than bad, promises corporations make to improve
conditions through auditing conflict directly with their
financial imperatives.
Corporations don't audit to find out whether they need to
change their supply chains, for example, leaving a country
where the labor environment guarantees abuses. They audit
because they want to preserve lucrative sourcing strategies and
need to convince policymakers and customers that those
strategies are somehow compatible with humane treatment of
workers. That goal is not served if auditors consistently
reveal embarrassing realities. Corporate imperatives shape
auditing schemes, not vice versa.
The corporations employ the auditors directly or pay
contract auditing firms. Unlike financial auditing, where there
are rules and regulations designed to preserve the ability of
auditors to render independent judgment of a client that is
paying them, social auditing is notorious for the lack of any
regulatory oversight. Auditors have strong incentive to avoid
inconvenient conclusions, while facing no consequences for
underreporting violations.
As the chairman has noted, social auditing in practice
involves giving unqualified people inadequate time to pursue an
unrealistic objective they have no incentive to achieve. Social
auditing is poorly suited to uncovering abuse, even in
environments conducive to labor rights investigation. An
unconducive environment like the one in China makes this
mismatch extreme. This raises a vital question: How can U.S.
corporations importing from China carry out the due diligence
with respect to forced labor they now have a legal obligation
to perform? The answer, with respect to auditing within the
XUAR, is simple. They cannot.
As this Commission reported in 2022, firms cannot rely on
factory audits to ensure that their supply chains are free of
forced labor. Meaningful audits remain a practical
impossibility in the region, which is why no sourcing can be
allowed. Many auditors have stopped auditing in the region,
some in response to calls from human rights groups, others
because the UFLPA has shrunk the market for auditing. Brands
that have ceased sourcing from the region have no reason to
hire auditors to conduct inspections.
However, as UFLPA enforcement accelerates and pressure
mounts in industries like solar and auto that have been heavily
dependent on the region, there is a risk of a resurgence of
efforts to use social auditing within the XUAR, as legal and
political cover for continued sourcing. Indeed, some auditing
firms continue to operate in the region. One is Elevate, one of
the most prominent auditing firms in the world. There was also
the recent Volkswagen audit of its joint venture facility in
the XUAR, an audit so lacking in credibility that most of the
staff of the firm that performed it publicly disavowed it.
While the impossibility of conducting credible labor
inspections within the XUAR is well established, compliance
with the UFLPA's ban on imports from factories outside the XUAR
that utilize transferred Uyghur workers remains essential to
compliance with the UFLPA. Since labor transferred from the
region has been utilized by factories in many different parts
of China, the risk is nationwide. This raises two questions:
Are corporations inspecting suppliers to ensure there's no
transferred labor? And what methods are their auditors using to
overcome the massive obstacles to such inspections?
There's little public information available. Most
corporations are silent on how they are complying in this area.
And no auditing firm has provided any transparency as to
methods. We know from private discussions that some auditing
firms are claiming they can detect transferred labor, but it is
unclear how many corporations are using such services and what
methodologies are employed. In our opinion, given the powerful
incentive any supplier using transferred labor has to hide the
practice, reliably detecting the presence of transferred Uyghur
labor requires methods beyond those normally employed by social
auditors--including gathering information from the facility's
workers offsite.
Interviewing workers onsite is useless in this context. It
is inconceivable that a Han Chinese worker is going to tell an
auditor in a conversation arranged by factory managers
occurring inside the workplace that Uyghur workers are present
in the facility and that management is hiding them. However,
based on limited information available, we're unaware of any
auditing firms that are using such alternative methods.
There's another obstacle to effective audits. The Chinese
government is actively seeking to undermine the ability of
auditors to expose abuse. Indeed, they are even targeting
auditing firms and their Chinese personnel involved in efforts
to verify compliance. The Outlaw Ocean Project provides a
window into the effectiveness of auditing under these
conditions. The project uncovered multiple instances of audits
failing to identify forced labor in seafood processing plants
in China, supplying U.S. firms. All had been certified by
prominent bodies that use social audits to verify compliance.
In one case, the investigation found Uyghurs working at a plant
the same day an audit gave the facility a passing grade.
By way of excusing these failures, auditing firms told
investigators, and I quote, ``forced labor is notoriously
difficult to identify.'' Indeed. Corporations face a severe
UFLPA compliance dilemma, even if they've stopped sourcing from
the XUAR. Full compliance requires viable methods to ensure
there's no transferred Uyghur labor at suppliers outside the
XUAR. The U.S. Government should be asking corporations
importing goods from China to demonstrate that they have such
methods in place. The leaders of any corporation that can't do
so must then explain how they know, with respect to any given
import on a given day, that they are not breaking the law.
Thank you.
Chair Smith. Thank you very much, Mr. Nova.
Dr. Zenz.
STATEMENT OF ADRIAN ZENZ,
SENIOR FELLOW AND DIRECTOR IN CHINA STUDIES,
VICTIMS OF COMMUNISM MEMORIAL FOUNDATION
Mr. Zenz. Dear Chairman, dear Co-chair, thank you for
inviting me to testify today. The so-called Xinjiang Uyghur
Autonomous Region operates the world's largest current system
of forced labor--state-imposed forced labor, with over 2
million Uyghurs and ethnic group members at risk as we speak.
In contrast to most forms of forced labor, state-imposed forced
labor operates through a pervasive police-state environment.
It is therefore often more readily assessed as a risk than
a specific instance because it creates an environment where
victims cannot speak freely. As a result, due diligence efforts
based on social or labor audits are not feasible, either in
Xinjiang or in Chinese provinces that receive transferred
ethnic workers. The Chinese government has been hiding related
statistics of transfers outside of Xinjiang. But, according to
my research, the number of transferred Uyghurs was set to
increase last year by 38 percent.
Affected companies and supply chains must be considered at
risk of being tainted with forced labor. The only ethical
choice is divestment. Many auditing companies are either
unaware or pretend to not realize that the very nature of
state-imposed forced labor and labor transfers means that
forced labor cannot be reliably assessed at workplaces. You
would have to conduct an audit of the entire social
environment. While there have been efforts by companies to
divest from supply chains linked to Uyghur forced labor, these
efforts remain insufficient, supply chain transparency remains
limited, and this has been severely aggravated by obfuscation
efforts by the Chinese state, which is now increasingly
criminalizing the collection of data essential to performing
due diligence.
Germany's chemical company BASF operates two joint ventures
in Xinjiang. Its joint venture partner, Markor, has
participated in government work teams that entered and spied on
ethnic households during the peak of the mass internments.
Incriminating reports on Markor's website that were identified
and passed to media last year describe staff enforcing
assimilatory ethnic unity activities and entering targeted
households at night. However, as recently as November 2023,
BASF stated that it was in concrete discussions with an
auditing firm to renew its Xinjiang joint venture audit in
2024. And as we know, of course, these audits cannot uncover
these kinds of activities.
In December 2023, Volkswagen published an informal one-page
PDF billed as an audit of its joint venture factory in
Xinjiang. Immediately after the report was issued the staff of
the auditing firm, Germany's Loning, disavowed any connection
to the audit. Between then and now, nearly one-third of the
entire staff at Loning have in fact resigned, presumably in
protest. The audit's methodology shed significant doubts on the
findings' validity. Volkswagen had disclosed that the actual
audit was conducted by two Chinese lawyers, who were
accompanied onsite by merely one Loning staff member.
Markus Loning's comments to the media suggest that his
quotes published by Volkswagen were, in fact, misleading. In
them, Loning claimed that ``we conducted 40 interviews.''
However, later he conceded that the audit was mainly based on a
review of documentation rather than interviews, given--
according to his own words--that interviews would endanger the
staff. Loning's statements acknowledged that this so-called
audit consisted of little more than a visual onsite inspection
combined with a review of staff work contracts. Such a review
cannot identify state-imposed coercion.
Experts have noted that a poorly designed audit is, at
best, meaningless and, at worst, excuses harm that the audit
claims to mitigate. Volkswagen's strategy appears to exploit
the fact that no visible signs of forced labor were ever likely
to emerge at its facility. By creating the appearance of a
genuine audit, while measuring factors irrelevant for assessing
state coercion, the Volkswagen-Loning effort is a paradigmatic
and deliberate example of audit-washing. In addition, further
research I conducted shows that the SAIC-Volkswagen test track
in Turpan, a Uyghur region, was built by a Chinese state-owned
enterprise using transferred Uyghur laborers, according to
their own statements.
Aside from exposure to coerced labor transfers, internal
government documents show that Volkswagen could also be
implicated in Xinjiang's camp-linked forced labor system.
Following the Loning audit, index provider MSCI removed
Volkswagen's ESG red flag rating, indicating that Volkswagen
can be considered an ethical investment, despite its continued
presence in Xinjiang. The most recent evidence implicating
Volkswagen's test track and forced labor has so far been
completely ignored by MSCI. MSCI is rewarding and enabling
Volkswagen's audit-washing and complicity in the region. This
issue warrants further investigation into both the Loning audit
and into MSCI's methodology.
Just in February this year, the International Labor
Organization published an update of its guidance, adding a
section on state-
imposed forced labor and responding to feedback and criticism
given by others and myself, in my extensive engagement for the
ILO last year. And you will find an entire section of that
reviewing the implications of these updated recommendations of
the ILO in my written testimony. This should be used to
investigate and to measure the issues created by audit-washing
and by questionable methodologies, including by index
providers.
Recommendations. I recommend that the U.S. Government and/
or Congress publish a detailed report about the ways in which
the Chinese state impairs the implementation of meaningful
audits and intimidates auditors and companies, preventing due
diligence. Congress should hold hearings to investigate the
experiences of audit providers in China and whether or not they
would be willing to conduct audits in Xinjiang. Scott Nova and
I sent a letter to multiple auditors early in 2020, and we only
got affirmative responses from a limited number of them. This
is an unacceptable situation.
Congress should also hold hearings involving Volkswagen, to
investigate the circumstances of the Loning audit, and whether
the public has, in fact, been misled by it. Congress should
also hold a hearing questioning index provider MSCI, and
potentially other index providers, over its methodology in
adding and then removing its red flag rating for Volkswagen
without clear and appropriate evidence--and also what MSCI will
do about the latest allegations directly implicating the
Volkswagen test track in Uyghur labor transfers. CBP should use
the Uyghur Forced Labor Prevention Act to require companies
whose supply chains involve an elevated risk of connection to
products made in whole or in part with Uyghur forced labor, to
disclose their supply chains at the raw material level. And if
they are unwilling or unable to do so, then Congress should
enact related legislation. Thank you.
Chair Smith. Thank you very much for your testimony and
expertise, and also for those very good recommendations. And we
will follow up. Thank you.
Mr. Wormington.
STATEMENT OF JIM WORMINGTON, SENIOR RESEARCHER AND ADVOCATE ON
CORPORATE ACCOUNTABILITY, HUMAN RIGHTS WATCH
Mr. Wormington. Thank you, Chairman Smith, members of the
Commission, for the invitation to be here today.
The essential context for this hearing is the long-standing
connection between major global industries and the Chinese
government's human rights violations, including state-imposed
forced labor programs targeting Uyghurs and other Turkic
groups. The car industry provides a compelling example of the
links between global supply chains and Uyghur forced labor. My
organization, Human Rights Watch, in February 2024, published a
report describing how approximately 10 percent of global
aluminum, a vital material for car manufacturing and other
industries, is produced in the Xinjiang Uyghur Autonomous
Region, which I'll refer to as the Uyghur region.
Our research showed that aluminum producers, and the coal
mines and coal plants that supply them, have participated in
coercive labor transfers, a form of state-imposed forced labor.
Aluminum from the Uyghur region is shipped out of Xinjiang,
melted down, and used to make aluminum products for car
manufacturers and other industries. The hearing today is
important because companies and their suppliers in the car
industry and other sectors continue, as my colleagues have
said, to use social audits to investigate labor conditions at
factories in the Uyghur region.
Audits are not a credible mechanism for investigating
Uyghur forced labor. The Chinese government's use of
extrajudicial detention, torture, and enforced disappearances
in Xinjiang, as well as massive intrusive surveillance, pose
grave risks to workers. This makes it impossible for auditors
to safely and credibly investigate forced labor. Volkswagen's
2023 audit, as Dr. Zenz has explained, exemplifies the problems
and pitfalls of auditing in the Uyghur region. I won't repeat
what Dr. Zenz said about the audits, but I think it's extremely
instructive that Markus Loning, whose firm oversaw the audit,
said afterwards that interviews with workers in the Uyghur
region could be ``dangerous,'' and that ``even if workers would
be aware of something, they cannot say that in an
interview,''--this from the person who oversees the firm that
oversaw the audit.
Following the release of the Volkswagen audit report, Human
Rights Watch and 61 Uyghur human rights and labor organizations
issued a statement criticizing the Volkswagen audits and
calling on consultancies and auditors to immediately cease
providing services in the Uyghur region. But stopping the use
of audits at factories in the Uyghur region is not enough to
address the role of audits in enabling connections between
global supply chains and Uyghur forced labor. And I think this
is, in some sense, the most important part of what I'll say
today, which is that stopping audits in the Uyghur region is
not enough to stop the connection between audits and the
washing of global supply chains.
That's for two reasons. The first reason, as Scott Nova has
referenced, is that labor transfers are continuing outside of
the Uyghur region, and that the question of how you can audit
sites and factories outside of Xinjiang is a question and
challenge that all companies operating in China have to
confront. And the second reason is that in industries,
especially, for example, in the car industry, companies also
use what's called supply chain due diligence audits, not to
investigate conditions at a particular factory, but to verify
whether their suppliers have processes in place to avoid
sourcing products or materials linked to human rights abuses.
So those audits don't look at particular factories. They look
at the sourcing policies of direct and indirect suppliers.
These audits, as others have said, are still constrained by
the threat of Chinese government harassment and reprisals
against auditors across China, where they are investigating
links to Uyghur forced labor. Our own research on supply chain
due diligence audits in the aluminum sector revealed evidence
that auditors assessing a car industry supplier, with evidence
of links to the Uyghur region, avoided reference to Uyghur
forced labor in the audit report due to ``the political
sensitivity of the issue.'' This form of self-censorship plays
squarely into the Chinese government's efforts to quash
discussion of its abuses in the Uyghur region, even for an
audit that was happening outside Xinjiang.
The impossibility of conducting credible audits in the
Uyghur region, and the growing concerns about the obstacles to
effective auditing in the rest of China, mean that companies
should not rely on audits either as evidence of the absence of
forced labor at specific factories or as proof that a supplier
in China is sourcing responsibly and does not have forced labor
in its supply chain. Companies should instead themselves map
their supply chain and responsibly disengage from joint
ventures, subsidiaries, or suppliers who continue to operate or
source materials or products from the Uyghur region.
I would echo what others have said, and as Chairman Smith
has said--about the importance of holding hearings to bring
executives from audit firms to Congress to testify about both
the obstacles of auditing in China and the efforts that those
firms are taking to avoid being complicit in human rights
abuses in China and elsewhere. Congress should also hold
hearings with key industries, including the car industry,
requesting that they testify about the risk of Uyghur forced
labor in their supply chains, and about their use of audits at
their joint ventures and their suppliers, potentially building
on the Senate Finance Committee's ongoing investigation into
the car industry and its links to Uyghur forced labor.
Finally, Human Rights Watch thinks and has said that the
Uyghur Forced Labor Prevention Act is an extremely important
and effective piece of legislation at stopping imports of
products from the Uyghur region entering the U.S. But for
products like aluminum, where the supply chain remains
extremely opaque and extremely complex, supply chain
transparency is the key obstacle to effective enforcement and
prohibition of imports linked to forced labor. Congress should
consider enacting legislation for high-risk commodities--like
cotton, polysilicon, and aluminum--that requires companies
importing those commodities to disclose their supply chains to
prove that they are, in fact, not sourcing from the Uyghur
region. Thank you, Chairman Smith.
Chair Smith. Thank you so very much, Mr. Wormington.
Maybe you could all give us some insight as to what
consequences you think there ought to be for these auditing
companies. We will invite them. We look forward to your
recommendations as to who. I'm wondering--if an auditor--
obviously, they must have some true sensibilities toward the
people they're talking to. And when they come back again and
find out that Joe or Jim or whoever all of a sudden has
disappeared, or they're in the laogai or they're in a
concentration camp for having spoken to them, if they did, is
there any anecdotal information on that, or is it all just
completely closed?
And let me just ask you this. You know, this whole auditors
issue reminds me of the charade that we saw going on in the
1990's. When, starting with George Herbert Walker Bush, then
followed very aggressively by Bill Clinton, we had an MOU with
China on gulag labor. And I went over to China several times. I
actually got into Beijing Prison No. 1, where Tiananmen Square
activists, 40 of them, were making shoes for export, and socks.
And Frank Wolf and I went there. And, you know, we took samples
out. We got an import ban on that one, but only because we had
the information and it was actionable.
But every time we raised it with the administration, they
would say, Oh, we have an MOU. And they would wave it in front
of us. And I'd say, But it's not worth the paper it's printed
on, because if we suspect something and we have no access to
the gulag or laogai that's producing this, we tell the Chinese
government, they investigate, and 60 days later they give us an
account. So I met with our customs people on one of my trips to
our embassy. And I said, Well, how many cases do you actually
get? And they said--none. Because, you know, who's going to do
it? And even if they had one, they would have to give it to the
Chinese police to do a whitewash, which they would do.
But at hearing after hearing we would have administration
witnesses telling us how we have an MOU. And now I think--fast
forward to today--we have these audits, which thankfully you
are helping to expose for the fraud that they are. And we've
got to come up with something. But what consequences should we
be imposing, if any, on the auditing companies? Obviously, most
of them are not U.S., if any. And then the companies--like at
our hearing; Thea will remember this. You know, we focus a lot
on Apple, and the others, but Apple in particular. And it was--
it's, like, nothing has changed.
And I'm just wondering, you know, 14 years later, after
that hearing, we're still dealing with this issue. And the
corporations are hiding behind this, like, See, we've got this
audit, everything looks fine. What companies, finally, would
you say are the worst violators of using this? You mentioned
Volkswagen. And I think that's a very insightful case. We'll
invite them. Maybe they'll come and testify. You know, it would
be great to hear how they square this with good corporate
citizenship. But any--if any of you would like to take a shot
at this? Yes.
Mr. Nova. I mean, in terms of the issue of retaliation
against workers who've testified to auditors, it's a widespread
problem in the industry. And there's very little follow-up in
general from corporate auditing firms. I don't know of any
firms that have a proactive mechanism for follow-up, which
means in order for them to even find out that something has
occurred, either the factory would have to disclose it, which
is obviously unlikely, or workers would have to trust the
auditor enough to actually reach out to them and complain,
based on a belief that they'd likely get some recompense as a
result.
And in general, auditors don't have that trust because from
a worker's perspective, an auditor is some group of people who
come into the factory under management's auspices, walk around
the factory with management, and ask a bunch of questions that
might as well have come from management. You know, we see this
problem frequently in our own investigations. And in addition
to the problem of after-the-fact retaliation, there's the
problem of before-the-fact coaching, of managers telling
workers--threatening them with consequences if they testify or,
most commonly, simply telling them: If you tell auditors
anything negative about our facility, we'll have to close and
you'll lose your job. So that's a huge obstacle.
On the question of consequences for auditors, this is a
really important issue. One obvious possibility is to view the
role auditors play in helping corporations hide the reality of
their supply chains from relevant audiences in the U.S.--to
view it as an act of fraud, and to think about how that could
be punished appropriately. Under the Trafficking Victims
Protection Act, the executives of corporations who profit from
forced labor in their supply chains that they either know about
or should know about, can be criminally prosecuted. It's never
happened, but the power exists to do so. The power also exists
to prosecute the auditors under the same law. And until we see
these kinds of consequences, it's very unlikely that we'll see
a major change in the practices and ethics of auditing firms
and the corporations that use them.
Chair Smith. Mr. Wormington.
Mr. Wormington. Thank you, Chairman Smith.
I mean, just to echo a point that Scott made, I think that
it is essential to think about what the legal strategies are
that can hold audit firms accountable. There is an analogy in
the mining sector, which I do a lot of work on, where you have
certification systems that purport to certify a particular
commodity--it could be gold, it could be cobalt, for example--
as being responsibly produced. And in essence, what that
certification is saying to the consumer is you can trust that
the origin of this material--you can trust the origin of this
commodity. And so there are ongoing examples of litigation,
including in London, where organizations are trying to hold
those certification agencies accountable under consumer
misrepresentation law, because they are misrepresenting to the
consumer that something was responsibly sourced, when it
wasn't.
But it's certainly true, I think, that the more legislation
we can have to facilitate those kinds of actions, the better.
Just quickly, on the other companies--the brands, the Apples,
the car companies that are implicated, I want to be really
clear that our report did include Volkswagen, but the issue of
sourcing of materials--not having a factory in Xinjiang, which
is the Volkswagen case--but the sourcing of raw materials is a
problem that applies across the automotive industry. It's not a
Volkswagen-specific problem. And if you are having car
companies come to testify about their supply chain links to
forced labor, you should absolutely be requiring the Teslas,
the Fords, the Mercedes, the General Motors, to come and
testify about that issue.
The other point I just want to quickly make on that front
is that we think a lot about imports, because of the Uyghur
Forced Labor Prevention Act. And, of course, we want to make
sure we protect consumers globally from imports that are linked
to forced labor. But many of these companies also have huge
joint venture operations inside of China--for example,
including General Motors, including Volkswagen--where in some
cases, the majority of their cars are actually being sold
inside of China and produced inside of China. But those are
still U.S. or European companies. And so the question should be
asked as to what the standards are that these companies are
applying for sourcing inside China, for your operations and
your joint ventures in China, just as much as you are for the
cars that are being exported to the U.S. I think that would be
a critical question to ask carmakers also if they come to
testify.
Chair Smith. Thank you. Dr. Zenz.
Mr. Zenz. Yes. I would very much agree with the assessment
that these sorts of pseudo-audits constitute a form of fraud
and should be punished as such. And I defer to experts, such as
Scott Nova, who are more familiar with the existing legal
frameworks and how they should be strengthened.
I think there's also a real communication problem. So when
I, for example, gave the recommendation that the U.S.
Government or Congress should publish a detailed report about
Chinese government impairment and obfuscation of auditing--of
meaningful auditing, I think there needs to be a lot more
detailed communication; for example, State Department guidance
on Xinjiang Business Advisories or the CBP's guidance on the
UFLPA--that with this kind of form of forced labor you cannot
go and audit a workplace, and then inspect a workplace and say,
Okay, well, there wasn't any obvious visual sign of coercion,
so we can kind of give this a passing grade. We should really
educate and also put it out as a warning sign to specifically
say that these kinds of procedures and standards to perform an
audit are unacceptable overall.
And, as we know with the UFLPA, unfortunately, there's no
criminal punishment component. If you violate the UFLPA, your
shipment gets detained. And you can go and pass it on to the
Canadians, or whoever else in the world. And that's not much of
a punishment if you do that on purpose and use a fraudulent
order to cover it up. And, as a side note--on your mentioning
of the reeducation through labor system, the laogai system--I
think we should keep in mind--I published a research report
last year that examined over 30 Chinese academic research
articles in which Chinese academics in the 2000s examine the
shortcomings of the laogai forced labor system, according to
their views. And they said the laogai system is ineffective.
It's not good at reeducation and it's not good at forced labor.
It tries to do both at the same time.
And the incredible thing is that what we see in Xinjiang is
that the Xinjiang reeducation camps constitute an improvement.
They actually took these recommendations, and improved the
reeducation forced labor system by having a dedicated
reeducation phase and then a dedicated skills training and
labor placement process to perform forced labor in private
companies. And I think it needs to be recognized how the
Chinese state is innovating their mechanisms of repression,
also with the poverty alleviation through labor transfer
program, how this constitutes an innovation by rendering state-
imposed forced labor less visible and more obfuscated, and more
insidious as a result. And so a lot more work and public
communication, I think, should occur pointing out that fact.
Thank you.
Chair Smith. Thank you. Secretary Lee.
Secretary Lee. Thank you so much to all three witnesses for
your excellent testimony and the information provided.
You've all raised a lot of interesting points. I guess one
thing I'd like to hear from each of you is some concrete
advice. And I appreciate some of the suggestions that have come
out in terms of transparency and so on for the U.S. Government,
and particularly the FLETF, the Forced Labor Enforcement Task
Force, which I serve on. You know, on the one hand, you're
saying we need better guidance for determining what is--you
know, in terms of state-
sponsored forced labor. But it's a little bit of a
contradiction because I would say that the business advisory
that came out tells people not to produce there. And so, you
know, you're going to give people better guidance like, How do
you do an audit in a state-
sponsored forced labor situation? Is there even an answer to
that question, that if we had a better guidebook we could
improve it?
But I guess what I'd really love to hear from each of you
is what you think next steps should be in terms of enforcement.
We have this important tool, the Uyghur Forced Labor Prevention
Act. We have the withhold release orders. That can be
motivating. And the thing that's motivating about it is that it
covers the entire supply chain. So, in principle, every single
thing that is in the auto supply chain is covered by both the
Tariff Act of 1930 and the Uyghur Forced Labor Prevention Act.
And yet we don't have the visibility, or the tools to
effectively be able to gather each one. So do you have some
concrete suggestions for how we can gain better visibility and
better effectiveness in terms of using the tools at our
disposal? Thank you.
Mr. Nova. It's a critical question. And, you know, the
corporations themselves are carrying out audits every day,
specifically around forced labor transfers. And one
recommendation would be for the FLETF itself to contact key
importers, perhaps the several largest in each of the most
important industries and ask them to proactively demonstrate
that they are utilizing audit methods that enable them to
reliably detect the presence of transferred labor. If they're
not doing that, then it's quite obvious that they cannot know
in any given instance whether the products they're importing
were or were not made with forced labor, in violation of the
UFLPA import ban.
And then the question is, what to do about corporations
that can't demonstrate that. And ultimately, I think
corporations will have to believe that unless they can credibly
verify compliance, they ultimately won't be able to import. I
don't think there is a way to consistently do, at this point in
time under current political conditions, reliable audits in the
country. At a minimum, any individual involved in them is
taking a sizable personal risk. And I don't know how, in that
context, you can expect people to do their jobs effectively.
I think the Chinese government will have to draw the
conclusion that the enormous and relentless obstacles it's
putting in place that prevent any kind of meaningful
verification are going to have to be reduced. And that if that
doesn't happen, there'll be a mass exodus of investment. And,
very frankly, I don't see any other scenario in which we'd see
change that doesn't involve that fear existing in the minds of
decisionmakers in the Chinese government, then leading to some
softening of the level of repression, surveillance, scrutiny,
that's making it impossible for auditors to do a credible job.
Mr. Zenz. I think it's great that the Xinjiang Business
Advisory is being published. And maybe the best solution is
actually to publish a separate document, a separate advisory on
auditing--on auditing in the context of state-imposed forced
labor. And why that is an inherent contradiction. Why the very
concept of a standard social audit approach is incompatible
with the very nature of how state-imposed forced labor
operates. And, of course, the existing guidance, you know,
makes sense and says that you can't reliably assess, you can't
interview, etc. But I think it goes beyond ``you can't
interview.'' There's a lot more that factors into it. And I
think FLETF could draw on the updated ILO guidance on that.
And I've produced a report that actually gives some
pointers on that. We actually have some hard copies in the
room. And if there was such guidance, I think it should be
complemented with a full report documenting the Chinese state's
efforts of interference and the legislation, the national
security legislation that basically outlaws the data gathering
required for conducting a meaningful audit. And you could, of
course, include testimony and the arrest of citizens--of
members of American auditing companies, like Mintz, etc.
And if you had these kinds of documents, even though
they're not legal, it would create a de facto reference point
and anchor point that companies like MSCI could be questioned
against. And I think that would be a start. You know, based on
what methodology did MSCI remove that rating, in light of
``X''? But ``X'' needs to be better documented. And on an
official level, not just by us researchers. And also, the
Volkswagen. Based on what standard of reference do we criticize
and say--and the U.S.Government--basically, it fails to meet a
standard that's effectively of the U.S. Government. And the
next step after that, of course, would be to punish and declare
violations and transgressions that are obvious under fraud--as
fraud.
Or to enact legislation. Maybe we need dedicated
legislation that prevents audit-washing worldwide, which is a
big issue as we've heard today. It's an issue in private
companies. It's an issue in--private forced labor, state-
imposed forced labor, China, the Democratic Republic of Congo,
etc., many places. Maybe this is something where legislation
needs to really move into. And I think subsequent hearings
would be essential in creating a baseline, but also to create
information as to what would be effective. But I think an
updated, maybe dedicated guidance, on audits, both pertaining
to Xinjiang and to transferred Uyghurs in other provinces--a
dedicated guidance by FLETF--would be a really good first step.
Chair Smith. Mr. Wormington, if you could just delay for a
moment. We have a vote on the floor, and Commissioner Nunn and
I are going to have to leave. But I would ask, if your time
permits, Secretary Lee, if you could chair the hearing, and ask
your further questions, and also hear from Mr. Wormington. I'd
like to yield so that we can get over and vote. Thank you so
much.
Representative Nunn. All right. Thank you, Mr. Chairman,
for holding this important hearing today. And we'll make sure
that we move expeditiously here. But we want to talk about
examining the lies and the duplicity of what the Chinese
Communist Party has done, particularly when it comes to us.
China is not new to the realm of misinformation and deceptive
practices. In fact, just a couple of months ago this very
Commission reviewed the CCP's lies when it came to the
inaccuracies in the Universal Periodic Review.
Today we're going to examine the CCP's abuse of third-party
social audits to hide their use of forced slave labor in
products used by everyday Americans, perhaps even many of us in
this room. The truth is that China will stop at nothing to
deceive the West and skirt our enforcement mechanisms, as the
administration has attempted to apply. The CCP continues the
abuse of Uyghurs and other religious factions and illustrates
they will continue to commit genocide and crimes against
humanity in order to fulfill the CCP's interest, and exploit
for distinct market advantage even against us here in the West.
However, the CCP does not act alone. This is one of the
things I want to focus in on today. As we will discuss, there
are certain corporations and third-party actors that have no
issue in assisting the CCP in their malign activities. In fact,
I would offer that the weaponization of social compliance
audits indicates that the CCP has strategically stacked the
cards in their favor when it comes to uncovering forced and
slave labor in their country. So, Mr. Chairman, I want to
applaud you for taking on what is a difficult issue, one that
has challenges both inside China and outside China. And I want
to thank the witnesses for taking time to share your expertise
with us today, as well as the Senate and the administration for
being involved in this.
So I'd like to begin with you, Mr. Wormington. You talked a
lot about the mining companies, and the different aspects of
this. Let's just ask the big question in the room: Are Western
companies being compliant with the CCP in helping them hide
their abuse, the use of Uyghur, and other slave labor forces?
And I ask that we talk top level.
Mr. Wormington. Yes. I think what's really clear, for
example, from our research on Volkswagen, is that companies do
have standards that are applying outside China that they are
not applying inside of China.
Representative Nunn. Do you think the CCP is playing a
direct role in influencing these companies, either overtly or
covertly?
Mr. Wormington. I think it's certainly true when you talk
to car company executives that the fear of reprisals that they
face from the Chinese government is affecting how they're
interacting with their own suppliers and their own staff in
China.
Representative Nunn. Do we have blind spots when it comes
to this? We certainly have it on the auditing side. But we hear
the anecdotal evidence coming from companies. I'd like to know,
where are we most out of information? Or where are those gaps
existing?
Mr. Wormington. Yes. The Uyghur Forced Labor Prevention Act
is an extremely effective piece of legislation in stopping
products from coming into the U.S. where they are linked to the
Uyghur region, to Xinjiang. The question is, and this is the
blind spot, what are the products that come from the Uyghur
region? Because companies, like car companies, have thousands
of suppliers, thousands of sub-suppliers. And at the moment
they do not know whether or not some or many of those sub-
suppliers are in fact sourcing from the Uyghur region.
Representative Nunn. So aside from the obvious monetary
profit that these companies are getting, would you offer--are
there other items behind why they would be standing with the
CCP, rather than their perceived Western values of a free and
independent labor force, when they know at some point in their
supply chain they are exploiting a group of individuals for
their own corporate profit? Are there other rationales why
anyone would be doing this?
Mr. Wormington. The reason, again, to take the example of
the car industry, is that many of these companies have huge
business interests in China, have huge financial interests in
China, have huge joint ventures in China. And the decisions
that they're taking are, of course, partly motivated by threats
and reprisals from the government, and partly motivated by the
fact that they have big business in China.
Representative Nunn. So by deterring this or ``calling it
out,'' they would effectively be stepping away from China as a
source of production for themselves.
Mr. Wormington. Well, we've seen the risks, for example,
with H&M, that where companies come out and say they're not
going to source from the Uyghur region they face reprisals both
online in China and in terms of their market share.
Representative Nunn. I'm now going to ask Mr. Nova--you've
done a lot on the social auditing side. How effective do you
believe social audits are in both uncovering as well as
addressing the labor rights abuses that are coming out of the
Uyghur region within China?
Mr. Nova. I think social auditing is an ineffective
mechanism under the best of circumstances. And the situation in
China represents the worst of circumstances, in terms of the
challenges and obstacles to auditing. So I do not believe
reliable information is being developed. Indeed, I don't even
think corporations are fully utilizing the options available to
them to at least try to do it a little bit better. And just to
speak quickly to your earlier question--you know, I don't think
there needs to be another motivation besides money.
Corporations aren't in the business of values. They're in the
business of profit for shareholders. And if making that profit
requires bending their practices in such a way that it's
acceptable to a host government, in this case the most
important host government, the Chinese, historically they've
been very happy to do that.
Representative Nunn. Well, Scott, I agree with you on
aspects of that. I will hopefully highlight that we, as
consumers, do have values. And that a lot of what drives our
decisionmaking is based on the fact that we don't exploit
labor, that we don't use slave workforces in order to do it. We
fought an entire Civil War here in this country for this very
purpose. And I would highlight that I think you nailed it on
the head here--we want to have visibility and transparency into
this so that we, as consumers, can make informed choices, and
do hold those corporate entities--whether they're in China or
here in the United States or elsewhere--accountable.
I guess my next question then is, who else besides just the
government, which I think is performing admirably here, can
help to hold these institutions accountable? Particularly the
multinational entities?
Mr. Nova. Well, there are, of course, other country
governments which also need to step up. And there's been some
positive movement in Europe in this regard, I think, following
the lead of the U.S. Government in terms of addressing this
specific issue. So that's encouraging. You make a very
important point about consumers. And there are consumer
organizations. But you know, consumers aren't a highly
organized, highly mobilized constituency. If they were, I think
we'd have very different supply chains, because you're
absolutely right. Consumers don't want to be wearing clothing
made with forced labor. They don't want the solar panels
they're proud of installing on their roof to include
polysilicon that was made with forced labor.
And if consumers understood fully what was happening in
supply chains globally, they would demand change. The primary
function of social auditing is to shield the actual practices
in supply chains from the scrutiny of consumers and thereby
enable business as usual to continue, even in the absence of a
level of humanness that consumers would consider minimally
acceptable as consumers. And so we need to remove that shield
and ensure that consumers can see what's actually happening.
And if we succeed in that regard, then we will change because
at the end of the day, corporations need someone to sell their
products to.
Representative Nunn. Mr. Nova, I would not disagree with
anything you just said. I think that's on the mark. Let me ask
then, are there success stories that we can point to for
further replication that really highlight how we provide the
transparency, both to the consumers, both to the end user, as
well as to the corporations themselves that are trying to
acquire this to know what is actually happening in China, so
that we can hold these folks accountable?
Mr. Nova. There are examples from other countries that are
positive. I talked earlier in my testimony about the horrible
situation in Bangladesh, of workers dying in fires and
structural collapses in buildings that had supposedly been
inspected, factory buildings, by auditing firms. But the worst
of those disasters ultimately created enough pressure that more
than 200 brands and retailers signed an enforceable agreement
with worker representatives, not just to do inspections but to
clean up the buildings, to renovate the buildings, and help pay
for it to make them safe. We then saw a radical physical
transformation of the production infrastructure of the
Bangladesh garment industry, resulting in concretely
demonstrably safer factories for more than 2 and a half million
garment workers.
And the key component of that was that the results of the
inspections done by the safety engineers, each hazard
identified and the remedy necessary to correct it, was
published. And the progress at each factory toward correcting
each of those hazards was reported publicly on an ongoing
basis. That is the opposite of what happens in the field of
corporate social auditing, where nothing is public. The workers
themselves don't see the results of the investigations that
supposedly exist to protect their rights. But can you have an
agreement like that in China? You spoke to this earlier,
Secretary Lee. Who signs an agreement on behalf of workers with
corporations that speaks to what happens to workers in China?
That's the challenge with replicating that model in the Chinese
context.
Representative Nunn. I mean, I think we can speak to
millions of car owners here in the United States that
potentially are going to have electric vehicles ``chosen'' for
them, or even want to do it for their own energy efficiency or
social consciousness. They don't want to know that that battery
came from a cobalt mine that was done by a child labor force,
perpetrated by the Chinese on a country in Africa. I think that
there's a real requirement here for us not to do the facade of
social auditing, but to have true transparency here. Thank you
for your testimony.
Deputy Undersecretary Lee, you've been a leader in this
with the administration. Some of the recommendations that have
been provided here, I wonder if you might share with us a
little bit. If this transparency were to be provided, if we
were able to have a better indication for not only Americans
but consumers around the world, what roles could the
administration play in enforcing this, holding China
accountable, and, ultimately, making sure that we, as the
consumer, have some kind of insight into what's happening here
so that we can make our own market-drive choices?
Secretary Lee. Thank you so much, Mr. Nunn, for that
question. I mean, I think transparent, accountable supply
chains are essential. And it's something that in some ways we
got away from in the go-go days of the global economy, where
these complex and fractured supply chains exist so that
corporations do not have to take responsibility, they don't
have to know. But I think it's completely possible. It's just
that we have to change the business culture to make it
understandable that everybody from the CEO on down in a company
understands that--you know, obviously they're making purchasing
decisions that require--you decide where you're going to buy it
from. What's the quality of it? There's quality control.
There's price. There's everything else.
You could, if you wanted to, know who the people were. So I
think that we're working in that direction in the U.S.
Government, in terms of both what's required by Customs and
Border Protection and the enforcement of things, but also in
terms of the international finance loans, in solar supply
chains, looking for more transparency at every stage of the
supply chain. So that is something that we are very committed
to doing. And I think that's all good. It's good for consumers.
Ultimately, it's good for businesses. They may resist it in the
short term, but I think this is the way of the future. And I
think we have a situation that is morally unacceptable if we
don't have the transparency. Thank you, sir.
Representative Nunn. Thank you, Deputy Undersecretary Lee.
Thank you, Chairman. And I would highlight, let's hold the bad
actors accountable, let's recognize the many who have tried to
step out on this to do the right thing--both as consumers and
as corporate citizens--and ultimately recognize that the real
threat here is coming from a government that has largely
enforced a slave labor mentality on its own people inside the
CCP. And the ultimate adversary here are the people who are
allowing this to happen at the front end. The threat happens
both inside and outside of China. Thank you, Mr. Chairman.
Chair Smith. Thank you very much. And I'm sorry, we do have
to leave. It's on zero over at the--on the floor. And I really
thank our distinguished Commissioner for taking over the
hearing. Without objection, a statement by Alicia Hennig will
be made a part of the record. And, again, I thank you so much
for your recommendations and your testimony.
Secretary Lee. Thank you, Chairman Smith.
I think we'll resume where we left off--with Mr.
Wormington.
Mr. Wormington. Thank you, Commissioner. Yes, the question
of recommendations for FLETF I think is a really important
question. I have one very simple one up front, which is that
aluminum be made a high-priority sector, because of the
percentage of the material globally that is coming out of the
Uyghur region. I think that should happen as soon as possible,
and certainly by this summer. I think that in terms of the
broader recommendations, this question of supply chain
transparency would really be front-and-center for me. As we've
said, the Uyghur Forced Labor Prevention Act is an extremely
powerful tool. And the question is, how do we identify those
products that are coming from the Uyghur region into the U.S.?
So far, that identification has been done sector by sector,
based on the priorities for enforcement of CBP. And so, for
example, in the automotive sector I think there's been a sense
that electric vehicle batteries might be a priority for
enforcement. And I know that that has then led to much more
scrutiny on the supply chains of electric vehicle batteries
within car companies. So as you have a priority, as you have a
sense that enforcement is coming, you have reactions from the
industry. Which, of course, is exactly what we want. But we
need something that creates those incentives on a much more
systematic and systemic level, given how many products and how
many commodities are linked to the Uyghur region.
At the moment, CBP is using some techniques--for example,
through questionnaires that they're giving to sectors--whether
it's to solar, whether it's to textiles--about high-risk
commodities like polysilicon or cotton. And those
questionnaires are designed to ask importers about the origin
of their materials and about their supply chain transparency.
But they're being done as part of that enforcement
infrastructure, and not as part of a systemic legislative
effort to push for more supply chain transparency.
So I think it's really important we look to other models.
For example, Dodd-Frank has been used for conflict minerals to
generate transparency over supply chains and the refining of
high-risk metals from the Democratic Republic of Congo. And we
should think about, if not necessarily transposing that exact
same model, then what the model is for using legislation to
drive transparency across high-risk commodities, linked to the
Uyghur region.
Secretary Lee. Thank you very much, Mr. Wormington, for
that answer. And I think we're really ready to wrap up. But I
wanted to give each of the witnesses a chance, if there's any
last point that you wanted to make before we adjourn.
Dr. Zenz.
Mr. Zenz. Sure. I would just--we've, I think, had very
important input, very educated input. And in my opinion, this
is such a long-standing problem in so many ways; we have seen
so many gaps also in understanding the nature of state-imposed
forced labor, and the kind of challenge that this poses. The
ILO itself discounted the role of state-imposed forced labor.
It discounted this role in the 2000's, said that we needed to
pay more attention to slavery, to global supply chains, which
of course in many ways was very true. But it also kind of
disempowered multilateral institutions, and the ILO itself, to
be less prepared, first, to kind of stumble through the
Uzbekistan situation in a way that was heavily criticized, but
then also to be quite unprepared when the Uyghur situation
really exploded. And it's now the largest system of state-
imposed forced labor.
And so I would really urge Congress and the administration
to followup, to hold these hearings, to commission this report
into the status of auditing in China, as suggested; for the
UFLPA guidance to update its requirements of supply chain
disclosure up to the raw material level for high-risk sectors,
and so on; to hold hearings and to investigate the practices.
Under what circumstances did MSCI remove this rating, which is
unbelievable. In many ways, when I was preparing for this
hearing I felt that this is kind of the tip of an iceberg. And
it's like the opening of a door that leads to a whole building.
So I just want to emphasize with this metaphor the need for
followup hearings and followup action on several of these
issues. Thank you.
Mr. Nova. I'd just reiterate what I said earlier about the
importance and value of intensified scrutiny of the
methodologies being employed by corporations and the auditors
that they utilize to ostensibly ensure compliance with the
UFLPA and with section 307. And whatever can be done to draw
out information and create transparency about what companies
are and are not doing, I think would be extremely helpful in
advancing this debate and the enforcement of those laws.
Secretary Lee. Thank you so much to all three of you. Your
testimony has been extraordinarily useful and valuable, but
also the work that you all do all day every day is valuable to
us. And so we appreciate it. We look forward to holding the
next hearing which will, I think, delve deeper, as you say, Dr.
Zenz, into the door that's been cracked open a slight bit. But
I think you have all raised a lot of systemic issues here that
are not going to be solved in the short term, or not solved
easily. But I think you've also put before us some very
concrete and valuable suggestions for how we might proceed. So
I thank you for your time. I thank everyone for being here. And
with that, I conclude this hearing.
[Whereupon, at 11:54 a.m., the hearing was concluded.]
?
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A P P E N D I X
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Prepared Statements
----------
Statement of Hon. Thea Lee
Congressman Smith, Senator Merkley, Honorable members of the
Commission, thank you for the invitation to appear before you today.
I am the Deputy Undersecretary of Labor for International Affairs
at the Department of Labor and oversee the work of the Bureau of
International Labor Affairs (or ILAB for short). ILAB plays a pivotal
role in promoting and protecting workers' rights worldwide. By
advocating for international labor rights, including the right to
organize, bargain collectively, to have safe working conditions, and to
be free of child labor, forced labor, and discrimination, ILAB
contributes to creating a more equitable global labor landscape.
Overview
The issue of factories and fraud in China is multifaceted, with
significant implications for human and labor rights and the integrity
of our global supply chains.
In my testimony, I will address two related issues: first--the
challenges and risks for businesses of using social compliance auditing
as a definitive assessment of labor conditions in general, and second--
the heightened risks given the ongoing human and labor rights
violations in the Xinjiang Uyghur Autonomous Region, making reliable
audits in the region impossible.
Risks of using social compliance auditing alone as a definitive
assessment of labor rights
Social auditing can be a useful tool to assess compliance at a
particular point in time, but it cannot be the only mechanism for
detecting labor rights violations and abuses. Audits are often
announced in advance, giving managers time to prepare a facility.
Managers can easily fake timesheets to skirt pay and overtime laws. And
workers may be pressured to provide inaccurate information.
To be effective, social auditing should be part of a comprehensive
social compliance system that ensures that trade unions, democratic
worker organizations, and other worker representatives provide support
and voice for workers to identify and raise concerns and collectively
advocate for their rights and interests without fear of retaliation.
ILAB's Comply Chain provides examples of best practices in this
area.\1\
---------------------------------------------------------------------------
\1\ See ``Steps Toward a Worker-Driven Social Compliance System''
at https://www.dol.gov/
agencies/ilab/comply-chain/steps-to-a-social-compliance-system.
---------------------------------------------------------------------------
Worker voice and the ability to freely express concerns are
particularly important. When authentic worker voice exists, workers can
freely elect their union representatives, identify problems, negotiate
agreements, and hold parties accountable. ILAB recently commissioned
Penn State University to provide a report, ``Worker Voice: What It Is,
What It Is Not, and Why It Matters.'' \2\ This report provides
important insight on why legitimate, authentic collective worker voice
is critical to ensuring effective social compliance.
---------------------------------------------------------------------------
\2\ See ``Worker Voice'' at: https://www.dol.gov/agencies/ilab/
worker-voice?_ga=2.22750203.
1707314604.1713908500.385848940.1713786258
---------------------------------------------------------------------------
It is clear that effective worker voice is impossible when workers
are trapped in state-sponsored forced labor, where there are no
independent, democratic unions, and where workers continue to face
threats and reprisals.
On the ongoing human and labor rights violations in the XUAR
This is the situation we face in China. There are widespread
restrictions and repression of freedom for human rights defenders.
There isn't just a lack of civil society presence; rather, the entire
civic space has been shut down. In Xinjiang in particular, ethnic
minorities live in fear of the Chinese government.
Any audit occurring in Xinjiang cannot be conducted without
government oversight, making objective worker interviews free from
reprisal an impossibility. As the U.S. Government highlighted in the
Xinjiang Business Advisory,\3\ published in 2021 and updated in
September 2023, auditor interviews with workers cannot be relied upon
given pervasive surveillance, the threat of detainment, and evidence of
workers' fear of sharing accurate information. Moreover, auditors have
reportedly been detained, harassed, threatened, or stopped at the
airport.
---------------------------------------------------------------------------
\3\ See Departments of Labor, State, Treasury, Commerce, Homeland
Security and the Office of the U.S. Trade Representative Xinjiang
Supply Chain Business Advisory, https://www.state.gov/xinjiang-supply-
chain-business-advisory/.
---------------------------------------------------------------------------
That is why dozens of major audit firms have not operated in
Xinjiang for years; the fear of reprisal for both workers and auditors
remains high. Social audits in China should not be seen as an
authoritative source for companies reflecting on-the-ground human
rights conditions. The business community needs to be aware that any
audits, and frankly any business operations undertaken inside China,
carry heightened labor and human rights risks.
Concluding remarks
In conclusion, ensuring that workers have a substantive role and
voice in social compliance is essential to make social compliance
audits legitimate. Without workers' feedback, input, and support in
resolving issues, labor exploitation risks in supply chains around the
world will unfortunately persist.
The Department of Labor serves on the Forced Labor Enforcement Task
Force to support implementation and enforcement of the Uyghur Forced
Labor Prevention Act. The UFLPA is a powerful tool to address egregious
human and labor rights abuses and to ensure that U.S. workers and
businesses have a level playing field. We'll continue to leverage that
tool to protect the integrity of lawful trade and the rights of workers
and continue to raise these issues and call for change.
I thank you for your attention.
Statement of Scott Nova, Worker Rights Consortium
Chairman Smith, Co-chairman Merkley, Members of the Commission,
thank you for convening this hearing and for the ongoing efforts of the
Commission and its staff to hold corporations accountable for what
happens to the workers in their supply chains in China.
In assessing the validity of auditing and certification schemes in
the People's Republic of China, it is necessary to bear in mind the
checkered history of such schemes, not just in China but across global
production chains. So-called social auditing has been a prominent
component of global manufacturing and sourcing for more than thirty
years, beginning in the apparel and footwear industries and expanding
over time to a vast array of sectors and products. These schemes, which
have proven public relations value to corporations keen on convincing
customers, journalists, and policymakers that they are operating their
supply chains responsibly, have often been of little or no value to the
workers whose rights they purportedly exist to protect.\1\
---------------------------------------------------------------------------
\1\ Sarosh Kuruvilla, Private Regulation of Labor Standards in
Global Supply Chains: Problems, Progress, and Prospects, Ithaca, NY:
ILR Press, 2021; and MSI Integrity, Not Fit-for-Purpose: The Grand
Experiment of Multi-Stakeholder Initiatives in Corporate
Accountability, Human Rights and Global Governance, July 2020, https://
www.msi-integrity.org/wp-content/uploads/2020/07/
MSI_Not_Fit_For_Purpose_FORWEBSITE.FINAL_.pdf.
---------------------------------------------------------------------------
The examples of social auditing's failures are voluminous; I will
cite one that is particularly illustrative. The worst industrial
disaster in a factory setting in world history, the collapse of the
Rana Plaza factory building in Bangladesh in 2013, which killed 1,134
workers, was the culmination of two decades of scandalous recklessness
by U.S. and European apparel brands and their local partners, resulting
in dozens of mass fatality fires and structural failures in factories
across that country's sprawling garment sector.\2\ In almost every such
case, including Rana Plaza, the factories in which workers died en
masse had been repeatedly inspected by social auditors who failed to
identify or correct lethal hazards that were readily detectable. After
Rana Plaza, when legitimate building safety inspections finally began
in Bangladesh under the auspices of the Accord on Fire and Building
Safety, the inspectors did not identify a single factory in a multi-
story building, out of more than 1,600 factories inspected, that had
proper fire exits.\3\ All these factories had been the subject of
numerous social audits conducted for Western brands and retailers. The
factories were death traps before these social audits, and they were
death traps afterward, a perfect track record of failure over more than
a decade and a half of social auditing and across tens of thousands of
individual audits.
---------------------------------------------------------------------------
\2\ Scott Nova and Chris Wegemer, ``Outsourcing Horror: Why Apparel
Workers Are Still Dying, One Hundred Years after Triangle Shirtwaist,''
Ed. Richard P. Appelbaum and Nelson Lichtenstein, Achieving Workers'
Rights in the Global Economy, p.17-31, Ithaca, NY: Cornell University
Press, 2016, https://www.jstor.org/stable/10.7591/j.ctt1h4mhcm.5.
\3\ Review and analysis of initial inspection reports and
corrective action plans available on the website of the International
Accord for Health and Safety in the Textile and Garment Industry,
``Status of factories in Accord programs,'' https://
internationalaccord.org/factories/#factory-search.
---------------------------------------------------------------------------
Prominent examples of the failure of social auditing to protect
workers can be found in every sector--from apparel,\4\ to
electronics,\5\ to toy manufacturing,\6\ to seafood \7\--and in any
country that intersects with global supply chains. Among the most
notable is the long history of labor rights auditing failures at
Apple's primary supplier in China, Foxconn. Our organization, in
conjunction with the Economic Policy Institute, documented aspects of
this history in a series of publications between 2012 and 2015. Among
the grim consequences of inadequate social auditing by Apple at Foxconn
were worker fatalities resulting from easily preventable explosions,
tens of millions of dollars in stolen wages that were never repaid, and
in-
humane work hours and production pressure that contributed to the rash
of worker suicides at Foxconn in 2010 and 2011.\8\
---------------------------------------------------------------------------
\4\ Brian Finnegan, Responsibility Outsourced: Social Audits,
Workplace Certification and Twenty Years of Failure to Protect Worker
Rights, AFL-CIO, April 23, 2023, https://aflcio.org/sites/default/
files/2017-03/CSReport.pdf.
\5\ International Labor Rights Forum and Business, Human Rights and
Environment Research Group School of Law, University of Greenwich, Time
for a Reboot: Monitoring in China's Electronics Industry, September
2018, p.7-9, https://gala.gre.ac.uk/id/eprint/22685/1/22685
percent20MARTIN-ORTEGA_Time_for_a_Reboot_2018.pdf.
\6\ Li Qiang, ``Fair Toys for Our Kids,'' Hearing before the
Congressional-Executive Commission on China: ``Working Conditions and
Factory Auditing in the Chinese Toy Industry,'' December 11, 2014,
https://www.govinfo.gov/content/pkg/CHRG09113jhrg92632/html/
CHRG09113jhrg 92632.htm.
\7\ The Outlaw Ocean Project, ``China: The Superpower of Seafood,''
accessed April 23, 2024, https://www.theoutlawocean.com/investigations/
china-the-superpower-of-seafood/findings/#failure-of-private-sector-
safeguards.
\8\ Scott Nova and Isaac Shapiro, ``Polishing Apple: Fair Labor
Association gives Foxconn and Apple undue credit for labor rights
progress,'' Economic Policy Institute, Issue Brief #352, November 8,
2012, https://www.epi.org/publication/bp352-polishing-apple-fla-
foxconn-labor-rights/; and Scott Nova and Isaac Shapiro, ``Assessing
the Reforms Portrayed by Apple's Supplier Responsibility Report,''
Economic Policy Institute, Issue Brief #377, March 25, 2014, https://
www.epi.org/publication/assessing-reforms-portrayed-apples-supplier/.
Additional related commentaries and blog posts are available at https:/
/www.epi.org/people/scott-nova/.
---------------------------------------------------------------------------
These failures are the product of flaws inherent in the approach to
labor inspection that defines most social auditing systems.\9\ For
global corporations to credibly claim that their social auditing
schemes provide a meaningful umbrella of protection for workers, these
schemes must be comprehensive in scope, which requires regular
inspections of hundreds, thousands, or tens of thousands of production
facilities and worksites across a corporation's supply chain. The only
way to conduct thousands of inspections annually, at a level of
expenditure considered affordable by corporations whose zeal for
minimizing labor costs explains why they are producing in Bangladesh,
China, Vietnam, and other low-wage countries in the first place, is to
use auditing methods that allow dozens or hundreds of labor compliance
standards and benchmarks to be assessed, at even the most massive
production facilities, in the space of one to 2 days.\10\ Such
inspections are superficial by necessity.
---------------------------------------------------------------------------
\9\ Abigail Higgins, ``Corporations are paying for worker abuse
audits that are `designed to fail', say insiders,'' The Guardian,
October 10, 2023, https://www.theguardian.com/global-
development/2023/oct/10/corporate-auditing-foreign-workers-abuse-
claims.
\10\ For testimony from auditors on what they can accomplish during
audits spanning one or 2 days, see: Human Rights Watch, `` `Obsessed
with Audit Tools, Missing the Goal': Why Social Audits Can't Fix Labor
Rights Abuses in Global Supply Chains,'' November 15, 2022, https://
www.hrw.org/report/2022/11/15/obsessed-audit-tools-missing-goal/why-
social-audits-cant-fix-labor-rights-abuses.
---------------------------------------------------------------------------
So are the skills of the auditors. The only way for one or two
people to carry out labor inspections that purport to cover the panoply
of legal and regulatory standards relevant to a typical workplace is
for those individuals to have a little knowledge about a lot of
subjects. In the U.S., we have numerous different regulatory agencies
at the Federal, state, and local level responsible for the enforcement
of labor-related laws and standards at American workplaces, including
the Wage and Hour Division of the Department of Labor, the National
Labor Relations Board, the Occupational Safety and Health
Administration, the Equal Employment Opportunity Commission, the Social
Security Administration, and local building inspectorates, among other
bodies. Within each, there are different categories of employees with
training in specific regulatory disciplines. These divisions of labor
are typical of well-developed regulatory systems because of the
extensive expertise required to handle each category of labor rights.
Social auditing systems, by contrast, almost invariably expect each
individual auditor to handle every applicable labor and worker
protection standard. Each auditor is thus a jack of all trades and a
master of none, called upon to carry out a series of specialized tasks
without specialized training. How did audits conducted in thousands of
apparel factories in Bangladesh invariably miss the fire and structural
hazards that threatened workers' lives? Because the people who
conducted those audits had no meaningful training in the identification
of fire and structural hazards. This did not, however, stop the firms
they worked for from issuing an endless stream of audit reports
claiming to have assessed workplace safety, in Bangladesh and
elsewhere.\11\
---------------------------------------------------------------------------
\11\ Declan Walsh and Steven Greenhouse, ``Certified Safe, a
Factory in Karachi Still Quickly Burned,'' The New York Times, December
8, 2012, https://www.nytimes.com/2012/12/08/world/asia/pakistan-
factory-fire-shows-flaws-in-monitoring.html; and European Center for
Constitutional and Human Rights, ``RINA certifies safety before factory
fire in Pakistan,'' November 2016, https://www.ecchr.eu/fileadmin/
Fallbeschreibungen/CaseReport_Rina_Pakistan.pdf.
---------------------------------------------------------------------------
Even more problematic are the conflicts of interest inherent in
social auditing and certification mechanisms. U.S. corporations don't
produce in China, or Guatemala, or Cambodia because they want to uphold
labor rights; they produce in countries with terrible labor rights
environments because it is much cheaper than producing in the U.S.
While identifying and correcting labor rights violations and improving
suppliers' labor practices is essential to achieve genuine respect for
worker rights in a corporation's supply chain, it also costs more to
produce under good conditions than under bad conditions, so the labor
rights promises corporations make are in direct conflict with their
financial imperatives.
Corporations do not utilize auditing schemes because they are
considering changing the way they operate their supply chains--for
example, leaving a region or country where the labor rights environment
precludes adequate worker rights protection or paying higher prices to
suppliers to support better labor practices. They utilize these schemes
because they want to preserve lucrative sourcing strategies and need to
convince customers and policymakers that those strategies are
compatible with the humane treatment of workers. That goal is not
served if audits consistently reveal embarrassing realities and show a
need for major reform.
Corporate imperatives shape auditing schemes, not vice versa. The
corporations either employ their auditors directly or select and pay
contract auditing firms. While industry parlance uses terms like
``independent'' to refer to auditing schemes, what corporations mean by
that term is only that they do not directly own the auditing firms to
which they outsource work: they do, however, choose the firms, pay them
for their services, and decide whether to use them again in the future.
And, unlike the world of financial auditing,\12\ where there are
industry-wide rules, standards, and regulatory mechanisms designed to
preserve the ability of auditors paid by a client to be in a position
to render independent judgment of that client's performance, and where
there are legal penalties for malfeasance or fraud, social auditing is
an industry notorious for the lack of any binding professional
standards and the total absence of regulatory oversight.\13\ Some
certification bodies purport to utilize rigorous standards that they
use to ``accredit'' auditing firms, but any such standards are purely
self-generated and operate apart from any independent oversight.\14\
And since audit reports are almost always secret--including from the
workers whose rights they are officially protecting--auditors face no
accountability via public scrutiny of their work.\15\ This is a system
in which auditors have strong incentive to avoid inconvenient
conclusions and rarely face any consequences for underreporting labor
rights violations.
---------------------------------------------------------------------------
\12\ Organisation for Economic Co-operation and Development, Making
Codes of Corporate Conduct Work: Management Control Systems and
Corporate Responsibility, OECD Working Papers on International
Investment, No. 2001/03, Paris: OECD Publishing, p.10, https://doi.org/
10.1787/525708844763.
\13\ Business & Human Rights Resource Centre, ``Social audit
liability: Hard law strategies to redress weak social assurances,''
September 2021 https://media.business-humanrights.org/media/documents/
2021_CLA_Annual_Briefing_v5.pdf; Anna Beckers, Enforcing Corporate
Social Responsibility Codes: On Global Self-Regulation and National
Private Law, Portland, OR: Hart Publishing, 2015, p.49, https://
dokumen.pub/enforcing-corporate-social-responsibility-codes-on-global-
self-regulation-and-national-private-law-9781849469029-9781849468992-
9781849469012.html; and Re:Structure Lab, Forced Labour Evidence Brief:
Social Auditing and Ethical Certification, Vancouver: Stanford, Simon
Fraser, and Yale Universities, 2022, p.21-22, https://
www.restructurelab.org/s/ReStructureLab_Social_Auditing_and_Ethical_
Certification_July2022.pdf.
\14\ Re:Structure Lab, Forced Labour Evidence Brief: Social
Auditing and Ethical Certification, Vancouver: Stanford, Simon Fraser,
and Yale Universities, 2022, p.20, https://www.restructurelab.org/s/
ReStructureLab_Social_Auditing_and_Ethical_Certification_July2022.pdf.
\15\ Carolijn Terwindt and Miriam Saage-Maass, ``Liability of
Social Auditors in the Textile Industry,'' Friedrich Ebert Stiftung,
December 2016, p.8, https://www.ecchr.eu/fileadmin/Publikationen/
Policy_Paper_Liability_of_Social_Auditors_in_the_Textile_Industry_
FES_ECCHR_2016.pdf, (``Contrary to auditing scheme claims of
>>transparency<< (e.g. BSCI 2015), audit reports are regarded as
confidential and the property of the auditor's client and therefore
generally not made public. Therefore, workers or unions have no means
of verifying the veracity of such reports.'').
---------------------------------------------------------------------------
Social auditing, in practice, involves giving unqualified people
inadequate time to pursue an unrealistic objective they have no
incentive to achieve.
Social auditing is poorly suited to uncovering labor rights abuses
even in environments conducive to labor rights investigation; an
unconducive environment, like the one that has long prevailed in China,
makes this mismatch extreme. Competent labor inspections depend on the
ability of workers to speak freely about their circumstances and
conditions of work. They require a functioning civil society in which
knowledgeable labor rights organizations can provide guidance to
investigators. The challenges of auditing in China, in this regard,
were extensive a decade ago.\16\ The closure of civic space,
acceleration of censorship, and intensification of political repression
in recent years has made the situation far worse.
---------------------------------------------------------------------------
\16\ Mark Anner, ``CSR Participation Committees, Wildcat Strikes
and the Sourcing Squeeze in Global Supply Chains,'' British Journal of
Industrial Relations, March 2018, p.75-98, https://wsr-network.org/
resource/csr-participation-committees-wildcat-strikes-and-the-sourcing-
squeeze-in-global-supply chains/.
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This gives rise to a critical question: how can corporations
sourcing from China carry out the labor rights due diligence,
specifically with respect to forced labor, that they have a legal
obligation to perform if they import products into the United States?
The answer with respect to auditing within the Xinjiang Uyghur
Autonomous Region (``XUAR'' or ``Uyghur Region'') is simple: they
can't. In March 2020, I testified to this Commission that ``No Uyghur
worker in the XUAR can possibly feel safe speaking candidly. ( . . . )
The only answer a worker can safely give to the question of whether her
labor is voluntary is `yes' . . . At this point, no firm should be
conducting audits in the XUAR. The only purpose audits can serve is to
create the false appearance of due diligence and thereby facilitate
continued commerce in products made with forced labor.'' \17\ This
Commission's 2022 Annual Report \18\ states: ``Firms cannot rely on
factory audits to ensure that their supply chains are free of forced
labor in the XUAR.'' This reality persists and meaningful labor rights
auditing, on the issue of forced labor and on any other labor rights
question, remains a practical impossibility in the region.
---------------------------------------------------------------------------
\17\ Testimony of Scott Nova before the Congressional-Executive
Commission on China, ``Global Supply Chains, Forced Labor, and the
Xinjiang Uyghur Autonomous Region'' Roundtable, March 11, 2020.
\18\ Congressional-Executive Commission on China (CECC), Annual
Report 2022, November 2022, p.260, https://www.cecc.gov/sites/
chinacommission.house.gov/files/2022_CECC_Report_
0.pdf.
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Many auditors have stopped auditing in the XUAR. Some did so in
response to public calls from human and labor rights organizations,\19\
others because enactment and implementation of the Uyghur Forced Labor
Prevention Act (UFLPA),\20\ the issuance of the Withhold Release Order
covering cotton and tomatoes from the Uyghur Region that preceded
it,\21\ and the public exposure of widespread state-
sponsored forced labor in the region,\22\ has shrunk the market for
social auditing. Brands that have ceased sourcing from the region for
legal or reputational reasons, or are attempting to conceal their
sourcing, have no reason to hire auditors to conduct labor inspections.
---------------------------------------------------------------------------
\19\ Eva Xiao, ``China's Xinjiang despite forced-labor concerns
restricted access has made examinations difficult in a region where
China's repressive tactics against Muslim minorities have been
criticized,'' Wall Street Journal, September 21, 2020, https://
www.wsj.com/articles/auditors-say-they-no-longer-will-inspect-labor-
conditions-at-xinjiang-factories-11600697706; and Business & Human
Rights Resource Centre, ``China: Auditors, certification firms &
organisations answer questions on their approach in Xinjiang as forced
labour concerns grow,'' Updated May 17, 2021, https://www.business-
humanrights.org/en/latest-news/auditors-answer-questions-on-their-
approach-in-xinjiang-among-growing-forced-labour-concerns/.
\20\ Public Law No. 117-78. See: U.S. Customs and Border Protection
(CBP), ``The Uyghur Forced Labor Prevention Act,'' accessed April 26,
2024, https://www.cbp.gov/trade/forced-labor/UFLPA, and U.S. Department
of Homeland Security (DHS), ``Uyghur Forced Labor Prevention Act,''
https://www.dhs.gov/uflpa.
\21\ CBP, ``Xinjiang Uyghur Autonomous Region WRO Frequently Asked
Questions,'' accessed April 26, 2024, https://www.cbp.gov/trade/
programs-administration/forced-labor/xinjiang-uyghur-autonomous-region-
wro-frequently asked-questions.
\22\ A collection of investigative reports and research studies is
available at Coalition to End Forced Labour in the Uyghur Region,
``Reports,'' https://enduyghurforcedlabour.org/home/reports/
---------------------------------------------------------------------------
Some auditing firms, however, continue to operate in the region,
though it is unclear if they are claiming to verify the absence of
forced labor at specific production facilities or worksites.
Companies and organizations that indicated publicly, as recently as
2021, that they were auditing in the Uyghur Region, or would conduct an
audit there upon request, were: ELEVATE, ERM, Sedex, and TCO
Certified.\23\ The Worker Rights Consortium (WRC) has been told by a
confidential source that ELEVATE continues to audit in the Uyghur
Region. There is also, of course, the now notorious audit recently
commissioned by Volkswagen of its joint venture facility in the XUAR,
which predictably concluded that all is well.\24\ That audit was so
lacking in credibility that most of the staff of the German consulting
firm that performed it for Volkswagen issued a public statement
disavowing any involvement in the project.\25\
---------------------------------------------------------------------------
\23\ Business & Human Rights Resource Centre, ``China: Auditors,
certification firms & organisations answer questions on their approach
in Xinjiang as forced labour concerns grow,'' Updated May 17, 2021,
https://www.business-humanrights.org/en/latest-news/auditors-answer-
questions-on-their-approach-in-xinjiang-among-growing-forced-labour-
concerns/. On April 23, 2024, the WRC checked the websites of the
auditors and certifiers contacted by BHRRC during spring 2021 and there
were no new statements related to the Uyghur Region on their websites.
\24\ Associated Press, ``Volkswagen-commissioned audit finds no
signs of forced labor at plant in China's Xinjiang region,'' December
6, 2023, https://apnews.com/article/china-volkswagen-xinjiang-uyghur-
forced-labor-c505dac48bebe92b6f792bafdaae61f9; and Volkswagen, ``ESG
Controversies,'' March 19, 2024, https://www.volkswagen-group.com/de/
esg-controversies-15846.
\25\ Victoria Waldersee, ``Senior staff at auditing firm distance
themselves from audit of VW's China plant,'' Reuters, December 13, 2023
https://www.reuters.com/business/autos-
transportation/auditing-firm-distances-itself-duos-work-vws-china-
plant-2023-12-13/, and Patricia Nilsson, ``Staff rebel at consultancy
behind VW review of Xinjiang rights abuse,'' Financial Times, December
13, 2023, https://www.ft.com/content/46b37a15-054e-4d40-b42b-
f31a0e3a07c3.
---------------------------------------------------------------------------
As the enforcement of the UFLPA accelerates, and the pressure
mounts on industries like solar and auto, that have been heavily
dependent on inputs from the XUAR \26\ and have little experience with
intensive scrutiny of labor practices in their supply chains, the risk
remains that we will see a resurgence of efforts to use social auditing
within the XUAR as legal and political cover for continuing to source
from the region. As has for decades been the case in the apparel
industry, the sector in which my organization specializes, if there is
a corporation in need of a favorable labor rights report it can
brandish to shore up a reputation sullied by disreputable labor
practices, that brand will always be able to find a social auditor
willing to issue that report, even in circumstances where the obstacles
to effective investigation are obviously insurmountable. In December
2018, the Associated Press (AP) published a story conclusively
documenting the production of clothing for U.S. brands at an internment
camp in the city of Hotan; \27\ the manufacturer, Hetian Taida, was
soon to become the first company in the XUAR to be the subject of a
U.S. Withold Release Order.\28\ The company was operating two
facilities, one inside the camp and also one adjacent to it, which
included, among its employees, what XUAR authorities call camp
``graduates'': recently released detainees who are forced to work at a
particular workplace as a means of continued government scrutiny and
control. At the time of AP's report, the latter facility had just
received labor rights certification from Worldwide Responsible
Accredited Production (WRAP),\29\ a U.S.-based, industry-funded
auditing and certification body that is utilized by numerous apparel
brands and retailers. Despite the negative publicity arising from the
AP story, and despite the fact that the facility inside the internment
camp had recently been featured on Chinese national television in a
program touting the internment camps as centers of vocational training
and Uyghur social uplift, WRAP and the factory's customers had no
trouble immediately finding multiple social auditors willing to conduct
audits and issue favorable reports declaring the company to be free of
forced labor. One, the prominent Swiss auditing firm SGS, went so far
as to affirmatively conclude that the workers at the facility adjacent
to the camp enjoyed full respect for their right to organize and
bargain collectively.\30\ The WRC asked WRAP what methods its auditors
had used to enable workers at that facility to speak freely about their
circumstances, given the severely repressive environment in the XUAR.
WRAP's CEO replied that since the facility was not located immediately
within the detention camp, our concerns about a repressive environment
were ``misplaced.'' \31\
---------------------------------------------------------------------------
\26\ Laura Murphy and Nyrola Elima, ``In Broad Daylight: Uyghur
Forced Labour and Global Solar Supply Chains,'' Sheffield Hallam
University Helena Kennedy Centre for International Justice, May 2021,
https://www.shu.ac.uk/helena-kennedy-centre-international-justice/
research-and-projects/all-projects/in-broad-daylight; and Laura Murphy,
Kendyl Salcito, Yalkun Uluyol, Mia Rabkin, et al., ``Driving Force:
Automotive Supply Chains and Forced Labor in the Uyghur Region,''
Sheffield Hallam University Helena Kennedy Centre for International
Justice, December 2022, https://www.shu.ac.uk/helena-kennedy-centre-
international-justice/research-and-projects/all-projects/driving-force.
\27\ Dake Kang, Martha Mendoza, and Yanan Wang, ``US sportswear
traced to factory in China's internment camps,'' Associated Press,
December 17, 2018, https://apnews.com/e7c9af9654fa43ad958b2dc54895d42e.
\28\ CBP, ``CBP Issues Detention Orders against Companies Suspected
of Using Forced Labor,'' October 1, 2019, https://www.cbp.gov/newsroom/
national-media-release/cbp-issues-detention-
orders-against-companies-suspected-using-forced.
\29\ WRC, ``Heitan Taida Apparel Co., LTD.,'' 2019, https://
www.workersrights.org/factory-
investigation/heitan-taida-apparel-co-ltd/.
\30\ Amfori, ``Hetian Taida Apparel Co. Ltd.,'' March 21, 2019,
https://www.workersrights.org/wp-content/uploads/2020/02/BSCI-Hetian-
Taida-20190313.pdf.
\31\ Email on March 1, 2019, from Avedis Seferian, Chief Executive
Officer at WRAP, to Scott Nova, Executive Director of the WRC.
---------------------------------------------------------------------------
While the impossibility of conducting credible labor rights
inspections within the XUAR is well established, a separate set of
questions about social auditing arises with respect to the provision of
the UFLPA that bans imports from factories outside the XUAR that
utilize Uyghur workers transferred from the XUAR under the auspices of
government authority. Compliance with this provision of the law
requires that corporations prohibit their suppliers from involvement in
labor transfers and requires that they have the capacity to verify that
suppliers are obeying this requirement. Since labor transferred from
the XUAR has been utilized by factories in many different parts of
China--use of transferred Uyghur workers has been exposed in the supply
chains of Apple and Nike, among other leading corporations \32\--it
must be assumed that the risk of complicity in this forced labor scheme
exists at virtually any production facility in the country. This gives
rise to two questions: 1) are corporations importing goods into the
U.S., made in part or in whole in any part of China, inspecting the
relevant suppliers to ensure that no transferred labor is being
utilized, and, if so, 2) what methods are their auditors using to
overcome the obstacles to credible and effective inspections, given the
prevailing climate of repression of rights of speech and assembly
across China and the extremely sensitive nature of any discussion of
Uyghur forced labor?
---------------------------------------------------------------------------
\32\ Vicky Xiuzhong Xu et al., ``Uyghurs for sale: `Re-education',
forced labour and surveillance beyond Xinjiang,'' Australian Strategic
Policy Institute, 2020, https://www.aspi.org.au/report/uyghurs-sale.
---------------------------------------------------------------------------
There is a notable dearth of public information that speaks to
these urgent questions. Most corporations sourcing from China are
publicly silent on how they are complying in this area. And we are
unaware of any auditing firm that has provided any transparency as to
the methods it utilizes to verify compliance. We know from private
discussions with corporations in several industries that some auditing
firms are claiming they can verify the presence or absence of
transferred labor and that such services are being utilized by a
substantial number of corporations. It is unclear what percentage of
corporations in various sectors are utilizing such services and it is
unclear what methods the auditors are utilizing.
In our opinion, especially given the powerful incentive any
supplier using transferred labor has to hide the practice, reliably
detecting the presence of transferred Uyghur labor requires the use of
methods beyond those normally employed by social auditors. This
includes gathering information from a facility's employees offsite,
without the knowledge of factory management, and gathering information
from people not employed by a facility but living or working in its
vicinity, who may have observed the presence of transferred workers.
Interviewing workers onsite, a dubious method of gathering information
under the best of circumstances, is useless in this context. It is
inconceivable that any Han Chinese worker is going to tell an auditor,
in a conversation arranged by factory managers, and occurring inside
the workplace, that Uyghur workers are present at the facility and that
management is hiding them. While rigorous review of factory records may
be sufficient in some cases to expose the presence of transferred
labor, there is a long history in China of the use of false records to
fool social auditors,\33\ a problem our organization has encountered in
our own factory investigations in China in the past.\34\ If the number
of transferred Uyghur workers at a facility is small relative to the
size of the overall workforce, it would not be difficult in most cases
for managers to provide altered records that obscure their presence. It
is therefore unlikely that auditing methods that rely solely on records
review, traditional worker interview methods, and interviews with
management can serve as a reliable mechanism for detecting transferred
labor across a corporation's Chinese supply chain, even if the review
of records and questions for managers are specifically designed to
enable auditors to do so. However, based on the limited information
available, it is our understanding that few, if any, auditors are using
offsite interviews and other alternate methods of investigation.
---------------------------------------------------------------------------
\33\ Lauren Foster and Alexandra Harney, ``Doctored records on
working hours and pay are causing problems for consumer multinationals
as they source more of their goods in Asia,'' Financial Times, April
22, 2005; Kathy Chu, ``Some Chinese factories lie to pass Western
audits,'' USA Today, April 30, 2012; Alexandra Harney, The China Price:
The True Cost of Chinese Competitive Advantage, New York: Penguin
Press, 2008, p.200; and Dexter Roberts and Pete Engardio, ``Secrets,
lies, and sweatshops,'' Business Week, November 17, 2006, http://
www.nbcnews.com/id/15768032/ns/business-us_business/t/secrets-lies-
sweatshops.
\34\ WRC, ``Worker Rights Consortium Assessment re Lianglong Socks
Co. Ltd (China): Findings, Recommendations and Status Report,'' April
3, 2008, https://www.workersrights.org/wp-content/uploads/2016/02/
Lianglong_Socks_Report_4-3-08.pdf.
---------------------------------------------------------------------------
There is another obstacle to effective audits: the Chinese
government, in policy and practice, is actively seeking to undermine
the ability of auditors to expose labor rights abuses at facilities in
China producing for export. In 2021, the government enacted statutes
designed to counteract the efforts of China's trading partners to hold
Chinese suppliers accountable for the use of forced labor and other
labor rights abuses.\35\ The effect of this law is to subject companies
doing business in China to sanctions for taking actions that advance
the implementation and enforcement of the UFLPA and any other law or
policy designed to hold importers accountable for the use of forced
labor by their Chinese suppliers. The government has also targeted
major brands that are known to be working to comply with the U.S.
Government's requirements concerning the XUAR and Uyghur forced labor.
Most prominently, the government launched a de facto consumer boycott
of H&M, a massive buyer of apparel from Chinese suppliers and a company
with major ambitions as a retailer in the country--with devastating
impact on H&M's Chinese sales.\36\ The Chinese government is also
specifically targeting auditing firms and their Chinese personnel
involved in efforts by buyers to verify forced labor-related compliance
by Chinese suppliers \37\--actions presumably designed to show auditors
that successful efforts to identify forced labor place them at severe
personal risk. This legal and practical crackdown on labor rights
inspectors working for foreign buyers is also likely to impede another
form of auditing highly relevant to UFLPA compliance: audits designed
to assess whether suppliers have adequate administrative mechanisms in
place to verify the source of the inputs they utilize and to spot check
whether the sub-suppliers a supplier reports are actually the source of
the inputs in question (this includes so-called ``supply chain due
diligence audits'' and ``traceability audits'').
---------------------------------------------------------------------------
\35\ Tatman R. Savio, Mahmoud (Mac) Fadlallah, Shiva Aminian,
Jingli Jiang, Bodi Jia, and Daniel L. Cohen, ``The New PRC Anti-Foreign
Sanctions Law,'' Akin Gump Strauss Hauer & Feld LLP, July 2, 2021,
https://www.akingump.com/en/insights/alerts/the-new-prc-anti-foreign-
sanctions-law.
\36\ Bloomberg News, ``China Canceled H&M. Every Other Brand Needs
to Understand Why,'' March 14, 2022, https://www.bloomberg.com/
graphics/2022-china-canceled-hm/.
\37\ CECC, Annual Report 2022, November 2022, p.256-271, https://
www.cecc.gov/sites/chinacommission.house.gov/files/
2022_CECC_Report_0.pdf.
---------------------------------------------------------------------------
Given that precise control of the supply chain, including the
exclusion of suppliers implicated in forced labor, is essential to a
corporation's ability to comply with the UFLPA, impediments to this
form of auditing carry enormous compliance risks.
An important window into the effectiveness of social auditing, in
the present context, at detecting forced labor in China is provided by
the work of The Outlaw Ocean Project, a journalistic enterprise that
conducts extensive investigations of forced labor and other rights
abuses in fishing and seafood processing. In investigations reported in
the fall of 2023, The Outlaw Ocean Project uncovered multiple instances
of social audits failing to identify state-imposed forced labor in
seafood processing facilities in China suppling U.S. firms.\38\ All ten
seafood processors that The Outlaw Ocean Project linked to Uyghur
forced labor were certified by the Marine Stewardship Council (MSC) and
four were certified by the Aquaculture Stewardship Council (ASC),
certification bodies that rely on social audits to verify labor rights
compliance. In response to the investigation's findings, MSC
acknowledged that its reliance on social audits has ``significant
limitations.'' In March 2024, after the publication of the
investigation, ASC said it intended to ``phaseout program operations
and cease investment in China''; at the time it had 289 certified
companies in China.\39\
---------------------------------------------------------------------------
\38\ Outlaw Ocean Project, ``China: The Superpower of Seafood,''
October 9, 2023, accessed
April 23, 2024, https://www.theoutlawocean.com/investigations/china-
the-superpower-of-seafood/
findings/.
\39\ Neil Ramsden, ``Aquaculture Stewardship Council to cease
operations in China,'' Undercurrent News, March 27, 2024, https://
cdn.theoutlawocean.com/investigations/china/pdf/coverage/
undercurrent-news_aquaculture-stewardship-council-to-cease-operations-
in-china.pdf.
---------------------------------------------------------------------------
The Outlaw Ocean Project reported that social audits are normally
announced, which allows workplaces to hide Uyghur workers in advance of
the audits, and ``[e]ven if they get to interview these workers,
auditors aren't trained to identify state-imposed forced labor, and
workers are reluctant to be candid for fear of retribution.'' \40\ Most
seafood buyers nonetheless relied on audits to defend themselves in
their responses to the investigation, ``many asserting that audit
reports proved there was no forced labor at the implicated factories.''
In one case, the investigation found evidence of Uyghurs working at a
plant the same day an audit was conducted by SGS that gave the site a
passing grade.\41\
---------------------------------------------------------------------------
\40\ Outlaw Ocean Project, ``China: The Superpower of Seafood,''
October 9, 2023, accessed
April 23, 2024, https://www.theoutlawocean.com/investigations/china-
the-superpower-of-seafood/
findings/.
\41\ Magali Dauwalder, Global Head of Corporate Affairs at SGS,
told The Outlaw Ocean Project: ``The audit SGS carried out was a
traceability audit. This audit is not a social audit. It doesn't cover
working conditions.'' See: The Outlaw Ocean Project, ``SGS S.A.:
Correspondence,'' June 26, 2023, https://www.theoutlawocean.com/
investigations/china-the-superpower-of-seafood/discussion/stakeholders/
sgs-sa/; and Ian Urbina, ``The Uyghurs Forced to Process
the World's Fish,'' The Outlaw Ocean Project, October 9, 2023, https://
www.theoutlawocean.com/
investigations/china-the-superpower-of-seafood/the-uyghurs-forced-to-
process-the-worlds-fish/.
---------------------------------------------------------------------------
Sedex, a widely utilized auditing platform, continues to allow its
``SMETA'' assessment tool to be used in audits across China, even while
refraining from providing assurances that SMETA is sufficient to detect
forced labor. In response to a question from The Outlaw Ocean Project,
Sedex stated:
``Forced labour is notoriously difficult to identify and
evidence given it is a criminal activity. Instances of forced
labour--and sometimes particular practices/behaviours
associated with higher risks of forced labour, such as those
outlined in the ILO indicators--are often driven underground.
The SMETA audit methodology includes assessment points relating
to these indicators, and there is a ``sensitive issues''
process that allows auditors to raise particularly sensitive
concerns immediately and confidentially with the site's
customers, allowing quick mitigation and remediation action.
However, behaviours may still be covered up and therefore
extremely difficult for auditors to find. Auditors cannot make
serious allegations of criminal activity without clear evidence
( . . . ) There are many regional-specific considerations in
how to conduct effective supply chain human rights and
environmental due diligence. We are aware of reported
challenges in conducting supply chain due diligence and onsite
audits within some high-risk regions, including constraints on
access by independent auditors, that make obtaining reliable
information by any safe and ethical means difficult. These
challenges don't detract from SMETA's effectiveness in other
contexts.'' \42\
---------------------------------------------------------------------------
\42\ The Outlaw Ocean Project, ``Supplier Ethical Data Exchange
(Sedex),'' June 28, 2023, https://www.theoutlawocean.com/
investigations/china-the-superpower-of-seafood/discussion/stakeholders/
supplier-ethical-data-exchange-sedex/.
A month later Sedex acknowledged: ``we recognise it may be
difficult and risky for auditors themselves to explicitly recognise
state-imposed forced labour in practice.'' \43\
---------------------------------------------------------------------------
\43\ The Outlaw Ocean Project, ``Supplier Ethical Data Exchange
(Sedex),'' July 20, 2023, https://www.theoutlawocean.com/
investigations/china-the-superpower-of-seafood/discussion/stakeholders/
supplier-ethical-data-exchange-sedex/.
---------------------------------------------------------------------------
For all of the reasons discussed above, corporations sourcing from
China face a severe UFLPA compliance dilemma, even if they have
undertaken a faithful effort to exclude inputs from the Uyghur Region
from their supply chains. While compliance with the UFLPA does not
require labor rights auditing to be feasible within the XUAR, the law's
ban on products made with transferred Uyghur labor elsewhere in China,
its ban on products made by companies found to have been complicit in
forced labor (those on the UFLPA-mandated ``Entities Lists''),\44\ and
the need to verify suppliers' claims that they are not using inputs
from the XUAR, all require a capacity to conduct reliable workplace
audits across the rest of China. Given the weaknesses of social
auditing worldwide; given the gauntlet of obstacles--longstanding and
new--specific to effective social auditing in China; and given the
track record to date; the capacity of corporations sourcing from China
to ensure that they are complying with the UFLPA and Section 307 of the
Tariff Act is in grave doubt. Assuming that this capacity actually
exists would be folly. The U.S. Government should be asking
corporations importing goods into the U.S., made in whole or in part by
suppliers in China, to affirmatively demonstrate that they have viable
methods and systems in place to ensure that the products they are
importing were not sourced from the XUAR, were not made by workers
transferred from the XUAR, and were not touched by any company on the
Entities Lists. The leaders of any corporation that cannot so
demonstrate must then explain how they know, on any given day, with
respect to any given import, that they are not breaking the law.
---------------------------------------------------------------------------
\44\ DHS, ``UFLPA Entity List,'' Updated December 8, 2023, accessed
April 29, 2023, https://www.dhs.gov/uflpa-entity-list.
---------------------------------------------------------------------------
The WRC recommends that Congress:
Hold hearings in which it asks the executives of leading
social auditing firms and certification bodies active in China to
disclose the methods they use to verify compliance with provisions of
the UFLPA that require workplace-level labor rights inspections,
explain why those methods should be viewed as reliable given the
relevant circumstances, and provide examples of their effectiveness.
Hold hearings in which it asks executives of leading
brands in the auto, solar, primary metals, and apparel sectors these
same questions.
Request that CBP revise and upgrade the methodological
standards it cites in its recommendations to importers concerning the
use of audits; the current guidance \45\ is silent, for example, on the
value of onsite worker interviews in workplaces in China.
---------------------------------------------------------------------------
\45\ CBP, ``Uyghur Forced Labor Prevention Act: U.S. Customs and
Border Protection Operational Guidance for Importers,'' June 13, 2022,
p. 15, https://www.cbp.gov/sites/default/
files/assets/documents/2022_Jun/
CBP_Guidance_for_Importers_for_UFLPA_13_June_
2022.pdf.
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Prepared Statement of Jim Wormington, Human Rights Watch
Dear Congressman Smith, Senator Merkley, honorable Members of the
Commission, thank you for the invitation to appear before you today.
The Car Industry Illustrates the Links between Global Supply Chains and
Forced Labor in Xinjiang
The essential context for this hearing is the longstanding
connection between major global industries and the Chinese government's
human rights violations, including state-imposed forced labor programs
targeting ethnic Uyghur and other Turkic groups. Human Rights Watch and
other organizations have documented the links between forced labor
programs in the Xinjiang Uyghur Autonomous Region (the Uyghur Region,
or Xinjiang) and global supply chains, from the cotton in clothes and
textiles, the polysilicon in solar panels, to the minerals and metals
in both electric and gas-powered cars.
The car industry provides a compelling example of the links between
global supply chains and the Chinese government's abuses in Xinjiang.
Domestic and foreign manufacturers in China produced and exported more
cars than any other country in the world in 2023. Chinese companies
also produce and export billions of dollars of parts used by global
carmakers, from electric vehicle batteries to alloy wheels. Many of the
industry's biggest brands use China as a manufacturing and supplier
base, a vital sales market, or both.
Companies manufacturing cars or sourcing parts from China risk
exposure to the government's forced labor programs. Human Rights Watch
released a report in February 2024 describing the links between
aluminum, a vital material for car manufacturing, and forced labor in
Xinjiang. Close to 10 percent of global aluminum is produced in
Xinjiang, and our research showed that aluminum producers in the
region, and the coal mines and coal plants that supply them, have
participated in coercive labor transfers, a form of state-imposed
forced labor. Aluminum from Xinjiang is shipped out of the region,
melted down, and used to make aluminum alloys and aluminum products and
is used by car manufacturers and other industries. International
commodities traders also continue to purchase and trade aluminum from
Xinjiang, further obscuring the links between Xinjiang and global
supply chains.
Global carmakers are currently doing too little to address the risk
of Uyghur forced labor in their aluminum supply chains. In our February
2024 report, we examined the aluminum sourcing policies and practices
of five major carmakers--BYD, General Motors, Tesla, Toyota, and
Volkswagen. We found problems in all five companies' sourcing
practices, ranging from a lack of knowledge of the origin of the
aluminum in their cars to a failure to take responsibility for joint
ventures' sourcing practices.
Volkswagen, for example, which holds 50 percent of the equity in
its joint venture with SAIC, a Chinese state-owned carmaker, has sought
to downplay its responsibility for human rights impacts in its joint
venture's supply chain. Volkswagen contends that, under German law, the
company is only legally required to address human rights impacts in the
supply chains of subsidiaries in which it has ``decisive influence,''
which it says excludes SAIC-VW.
German government guidance, however, sets out a range of criteria
for determining whether a company has ``decisive influence,'' including
``whether the subsidiary manufactures and exploits the same products or
provides the same services as the parent company.'' SAIC-Volkswagen
manufactures cars for the Chinese market under the Volkswagen brand.
The law also applies to Volkswagen's direct suppliers, which could
include SAIC-Volkswagen.
Companies in joint ventures also have a responsibility under the
United Nations Guiding Principles on Business and Human Rights (the
``UN Guiding Principles'') to use their leverage to address the risk of
forced labor in the joint venture's supply chain. Volkswagen has said
the company ``assumes responsibility . . . to use its leverage over its
Chinese joint ventures to address the risk of human rights abuses.''
But when asked about potential links between SAIC-Volkswagen and an
aluminum producer in Xinjiang, Volkswagen responded: ``We have no
transparency about the supplier relationships of the non-controlled
shareholding SAIC-Volkswagen.''
General Motors and Toyota, which also operate through joint
ventures in China, did not provide written responses to our questions
about their oversight of Chinese joint ventures, supply chain mapping,
or the origin of their aluminum. General Motors instead said, ``GM is
committed to conducting due diligence and working collaboratively with
industry partners, stakeholders, and organizations to address any
potential risks related to forced labor in our supply chain.'' BYD also
did not respond to questions about its efforts to address forced labor
in its supply chain.
Tesla, which builds cars for China's domestic market and for export
at its Shanghai Gigafactory, said that it had ``in several cases''
mapped its aluminum supply chain and had not found evidence of forced
labor. However, the company did not specify how much of the aluminum in
its cars remains of unknown origin.
Our research concluded that all five companies need to do more to
map their supply chains for aluminum parts and identify and address
potential links to Xinjiang. Confronted with an opaque aluminum
industry and the threat of Chinese government reprisals for
investigating links to Xinjiang, carmakers in many cases remain unaware
of the extent of their exposure to forced labor.
Credible Social Auditing Is Not Possible in Xinjiang
The term social audits refers to a broad range of third-party
inspections that purport to assess a company's compliance with
specified human rights, labor, or environmental standards. The term is
frequently used to refer to factory audits designed to assess labor
conditions at the facility under inspection.
The risk of links to Uyghur forced labor in supply chains has led
some companies, in the car industry and other sectors, to look to
social audits to investigate labor conditions at factories in Xinjiang.
Volkswagen, for example, in 2023 commissioned an audit of the risk of
forced labor at the Xinjiang plant operated by a subsidiary of SAIC-
Volkswagen.
The inherent limitations of social audits, however, and the threats
to auditors and workers in Xinjiang, mean that companies should not
commission or rely on audits in the region.
Human Rights Watch and other organizations have documented the
limitations of factory audits in identifying labor abuses, including
forced labor globally. Common problems include the inadequate time on
the ground to conduct the audit; the failure to interview workers
offsite in safe settings; conflicts of interest between the audit firm
and paying clients; and successful efforts to deceive auditors by
hiding actual working conditions.
The inherent problems of factory audits are exacerbated in
Xinjiang, where the Chinese government's brutal repression means there
is no valid means to verify that any workplace in the region is free of
forced labor. Threats to workers in Xinjiang mean that interviews with
workers, which are essential to the methodology of any labor or human
rights investigation, cannot generate reliable information. The
government's use of extrajudicial detention, torture, and enforced
disappearance, as well as mass and intrusive surveillance, means any
victim of forced labor would and should assume that providing truthful
testimony to an auditor would result in government retaliation. At
least five international audit firms had by 2020 determined they would
no longer conduct audits in Xinjiang.
Volkswagen's 2023 audit of the Xinjiang plant, overseen by a firm
run by Markus Loning, Germany's former commissioner for human rights,
exemplifies the pitfalls of auditing in Xinjiang. Loning said in
December 2023, when the audit was released, that ``we could not find
any indications or evidence of forced labor'' at the plant and stated
that ``we conducted 40 interviews and were able to freely inspect the
factory.'' He later admitted, however, that the main basis for the
audit, which was conducted by a Shenzhen law firm with support from
Loning, had been a review of documentation rather than interviews,
which he said could be ``dangerous.'' He also said that ``even if they
[workers] would be aware of something, they cannot say that in an
interview.''
Despite these flaws, the release of the Volkswagen audit resulted
in MSCI, a financial rating agency, removing a ``red flag'' rating for
the company's stock. On March 12, 2024, and following the release of
the audit report, Human Rights Watch and 61 Uyghur, human rights, and
labor organizations issued a statement calling on consultancies and
auditors to immediately cease providing services in the Xinjiang Uyghur
Autonomous Region. The statement also called on companies not to
commission audits in the region, to exit the Uyghur Region at every
level of their supply chains, and cease doing business with suppliers
implicated in Uyghur forced labor.
Supply Chain Due Diligence Audits throughout China Are Highly
Problematic
Stopping the use of audits at factories in Xinjiang is not,
however, enough to address the role of audits in enabling links between
global supply chains and Uyghur forced labor. Other organizations have
documented how audits in other regions of China, including in the
seafood industry, have failed to identify the presence of Uyghur forced
labor at factories. In addition, companies frequently use ``supply
chain due diligence'' audits of suppliers outside Xinjiang as a tool to
verify whether suppliers have processes in place to avoid sourcing
materials or products from Xinjiang and other high-risk regions. Supply
chain due diligence audits, however, are still constrained by the
threat of Chinese government reprisals against auditors or their
sources, creating obstacles for auditors seeking to safely investigate
companies' supply chain links to forced labor.
Supply chain due diligence audits, rather than looking at labor
conditions at the supplier's factory, instead or in addition consider
whether the company has adequate responsible sourcing policies and
practices to identify the source of its materials and products and to
address the most important human rights and environmental risks in its
supply chain. The audits frequently assess companies against supply
chain due diligence standards such as the Organisation for Economic Co-
operation and Development (OECD)'s Due Diligence Guidance for
Responsible Business Conduct and the OECD Due Diligence Guidance for
Responsible Supply Chains of Minerals from Conflict-Affected and High-
Risk Areas.
The Chinese government's hostility to scrutiny of its treatment of
Uyghurs makes it difficult for auditors conducting supply chain due
diligence audits to investigate whether companies are effectively
identifying and eliminating potential supply chain links to Xinjiang.
The government has harassed companies or individuals that assist
businesses to investigate their potential links to human rights abuses
in China, including forced labor in Xinjiang. In March 2023, Chinese
police closed the Beijing office of the consulting firm Mintz and
detained five of its Chinese staff for questioning. Media reported that
Mintz had conducted corporate due diligence work related to forced
labor and supply chains in Xinjiang. In April 2023, a state news report
stated that national security officials had penalized a Chinese
national under counter-espionage laws for assisting a nongovernmental
organization in labor rights investigations related to Xinjiang.
Executives at other consulting firms told reporters in May 2023 that
the government has warned them against conducting due diligence work
related to Xinjiang.
The Chinese government in April 2023 also passed an expanded
counter-espionage law that experts have warned could increase the
government's power to investigate and prosecute foreign firms
conducting research on local markets and business partners. In 2021,
the Chinese government also enacted several anti-sanctions laws that
could put companies with assets and personnel inside China at risk of
sanction from Chinese regulators--or subject to civil liability--for
taking actions to implement foreign laws such as the Uyghur Forced
Labor Prevention Act. Companies are also concerned that, were their
efforts to tackle forced labor in Xinjiang to become public, their
business might be boycotted by Chinese consumers. In 2021, the decision
by clothing company H&M to stop using cotton from Xinjiang led to its
removal from Chinese online retail platforms as well as attacks on
social media.
Human Rights Watch's research on aluminum illustrates the
limitations of audits in assessing whether Chinese suppliers are
sourcing responsibly and avoiding the risk of links to Uyghur forced
labor. Our research examined in detail the Aluminium Stewardship
Initiative (ASI), an audit program that assesses and ``certifies''
suppliers against social and environmental standards, including their
responses to forced labor. Several car companies, including BMW,
Mercedes, Tesla, and Volkswagen, refer to suppliers' audits under ASI
as part of their efforts to source aluminum responsibly. ASI has not
certified smelters in Xinjiang, but it has given manufacturers of
aluminum products elsewhere in China a passing grade for their sourcing
practices even where evidence suggests that those companies may have
sourced aluminum from Xinjiang.
Chalco Ruimin, a subsidiary of state-owned aluminum producer
Chinalco, is one of the companies certified by ASI. Chalco Ruimin's
products include aluminum alloys and sheets for the automotive
industry. There is evidence that Chalco Ruimin has sourced aluminum
from Xinjiang. Xinjiang Zhonghe, a Xinjiang-based smelter, stated in
2021 and 2022 that it supplies aluminum products to Chalco Ruimin.
Xinjiang Zhonghe stopped disclosing its downstream customers in 2023.
As a member of the Chinalco group, Chalco Ruimin may also source
aluminum from other Chinalco entities. Chinalco's trading arm has
purchased aluminum from Xinjiang.
Although ASI's audit standards include criteria assessing
companies' human rights and supply chain due diligence, the summary
audit reports certifying Chalco Ruimin against ASI's standards
contained no reference to Uyghur forced labor. ASI told Human Rights
Watch that the auditor found ``no critical human rights issues
regarding child labor or forced labor'' and stated that ``Specific
reference to `Uyghur forced labor' was likely not incorporated in the
audit report due to political sensitivities in China on this specific
issue.'' The Chalco Ruimin policies that the auditors relied on to
assess the company's sourcing, including the company's human rights
impact assessment, also contained no reference to Uyghur forced labor
and very little detail on how the company maps its supply chain to
identify human rights risks.
The failure of both the summary audit report and the company's
underlying sourcing policies to explicitly address the risk of Uyghur
forced labor exemplifies the limitations of auditing in China. Kendyl
Salcito, an aluminum industry expert who sits on ASI's Standards
Committee and whose nongovernmental organization, NomoGaia, co-authored
a Sheffield Hallam University report on Uyghur forced labor in
automotive supply chains, told Human Rights Watch that using the
political sensitivity of China's violations in Xinjiang as a reason not
to discuss forced labor in audit reports ``gives the Chinese government
carte blanche to quash discussion of abuses in the Uyghur region. If
auditors can't document links between aluminum producers and forced
labor, how can ASI credibly claim to be auditing forced labor risks?''
Salcito acknowledged ASI is in a ``difficult position,'' because
China's dominant role in primary aluminum production means that, ``in
order to be globally relevant, ASI needs to engage with Chinese
operators,'' but expressed concern that the challenges of auditing in
China, especially the Chinese government's hostility to auditors or
auditees discussing Uyghur forced labor, made it very difficult for ASI
to credibly assess whether Chinese companies are taking adequate steps
to eliminate links to Xinjiang.
ASI, in response to Human Rights Watch's reporting on aluminum and
Xinjiang, stated in February 2024 that it ``firmly rejects HRW's
characterization of ASI as a `flawed' scheme with a failure to
meaningfully investigate . . . risks of links to forced labour.'' ASI
acknowledged that, ``auditing human rights risks in many contexts is
challenging,'' but stated ``that doesn't make the process `inherently
flawed' or worthless. The alternative is either nothing, or some other
process of inquiry which will face the same challenges.'' ASI also
noted that the companies referenced in Human Rights Watch's report were
willing to be subject to follow-up audits in 2024 and that the auditors
in question had been informed of Human Rights Watch's concerns on
forced labor.
Audits Are Not a Solution to Forced Labor
The limitations of social audits, the impossibility of conducting
audits in Xinjiang, and the growing concerns about the obstacles to
credible audits in the rest of China mean that companies should not
rely on audits either as evidence of the absence of forced labor at
specific factories or as proof that a supplier is sourcing responsibly.
Companies should instead map their supply chains and responsibly
disengage from joint ventures, subsidiaries, or suppliers who continue
to operate in or source materials or products from Xinjiang.
The continued links, however, between car companies and forced
labor in Xinjiang, including the problematic role of audits in
obscuring forced labor risks, makes it vital to increase congressional
and executive oversight over the auditing and automotive industry.
To that end, Human Rights Watch respectfully urges that Congress:
Hold hearings requesting that executives at major audit
firms and certification schemes testify about the challenges of
auditing in China, including but not exclusively in Xinjiang, and
describe the efforts they are taking to ensure that their audits are
not used to obscure or enable links to forced labor and other human
rights violations in China.
Hold hearings requesting that car company executives
testify about the risk of Uyghur forced labor in their supply chains,
including their joint ventures, and their efforts to respond to that
risk. These hearings could build on the Senate Finance Committee's
ongoing investigation into links to Uyghur forced labor and global
carmakers.
Hold hearings requesting that executives at major
international commodities traders, including Glencore and Trafigura,
testify about whether their firms source aluminum and other materials
in Xinjiang, as well as other areas with high risk of links to human
rights abuses, and the efforts the traders take to address the risk
that they are purchasing and selling materials or products linked to
forced labor and other human rights abuses.
Write to the Forced Labor Enforcement Task Force to
request that it make aluminum a ``high-priority sector'' under the
Uyghur Forced Labor Prevention Act.
Enact legislation that requires companies sourcing
materials with a high risk of links to Xinjiang, such as cotton,
polysilicon and aluminum, to disclose their supply chains at the raw
material level to demonstrate that they are sourcing from outside
Xinjiang.
Prepared Statement of Hon. Chris Smith
Good morning, and welcome to today's hearing, which will look at
the use of so-called ``social audits'' by companies whose supply chains
originate in the People's Republic of China to cover up the existence
of forced labor in those supply chains.
Back in the early 2000's, I read a book called IBM and the
Holocaust: The Strategic Alliance Between Nazi Germany and America's
Most Powerful Corporation. I recall how shocked I was at the time at
what the book revealed about an American corporation's complicity in
aiding and abetting the Nazi regime, placing bottom-line greed over
concern for humanity and turning a willing blind eye to the
implications of their work.
Nor was IBM alone in this--books have been written about the ties
the white-shoe law firm Sullivan & Cromwell had with the Nazis, for
example. But I took some comfort in knowing that that was in the past.
Surely if there were evidence today of an evil regime's abuse of
human rights--for example, the mass-scale detention of a despised
ethnic and religious minority in concentration camps, forcing them to
toil as practical slaves to produce goods for export--American
corporations would shudder and shun any complicity with that.
Fast forward to today, however, and that is precisely what we see--
corporate complicity in the grossest of human rights violations. Our
last hearing revealed, for example, how Thermo Fisher Scientific, whose
DNA markers have been used by police in the Tibet and Xinjiang
Autonomous Regions to compile databases of the DNA of millions of
Tibetans and Uyghurs, has also been implicated in the forced harvesting
of human organs.
While Thermo Fisher Scientific may be the corporation whose
behavior most closely mimics that of IBM before the beginning of the
Second World War, our hearing today focuses on those manufacturers,
suppliers, importers, and retailers whose supply chains in China are
tainted by reliance upon forced labor to achieve the lowest prices, yet
who rely on social auditing companies to obscure and whitewash that
reliance.
We have known about corruption in the audit industry for a long
time. Back in July 2012, I held a hearing where Li Qiang, the founder
of China Labor Watch, testified as to audits. He said not only are
audits conducted in China ineffective, but he said ``they are actually
corrupt.'' He went through examples of how auditors for corporations
such as Apple ignored unfavorable facts, such as with regard to in-
adequate worker safety processes. He gave several examples of the
bribing of auditors so that auditors' reports would not require the
investment of millions in improving conditions in factories and plants.
Today, using the fig leaf that audits provide, corporations seek to
convince consumers, regulators, and perhaps even their own consciences
that their supply chains are clean and compliant with U.S. law,
including the provisions of the Uyghur Forced Labor Prevention Act, or
UFLPA, and section 301 of the Trade Act, both of which prohibit the
importation of goods made with forced labor.
In a nutshell, however, as our witness Scott Nova will testify,
``Social auditing, in practice, involves giving unqualified people
inadequate time to pursue an unrealistic objective they have no
incentive to achieve.''
In a country such as the People's Republic of China, where
independent labor unions do not exist, social controls prevent the free
exchange of information, and recently passed national security laws
make the disclosure of information that portrays China in a bad light a
national security offense, social audits are particularly laughable.
But beyond aiding and abetting the human rights abuse that forced
labor entails, companies whose supply chains are tainted also undercut
American manufacturers at home, such as in the textile industry, whose
ability to produce quality goods at an affordable price is undercut by
importers who drive costs down by essentially utilizing slave labor.
Such labor may come from prisons in the Chinese laogai system, or from
Uyghurs detained in so-called ``Vocational Skills Education and
Training Centers,'' or otherwise assigned by Poverty Alleviation
Through Labor Transfer programs to toil elsewhere in China.
These corporations profit from the sweat of the brows of Uyghurs
and other labor abuse victims in China, while beggaring their fellow
Americans seeking to earn a decent wage in factories in the United
States.
I look forward to hearing our witnesses expose the deception
inherent in the use of social audits to whitewash corporate complicity
in labor rights abuse.
I would like to receive input on regulatory and legislative gaps
that they think need to be plugged. I also would like to hear their
thoughts in particular on enforcement of existing legislation, like the
UFLPA, and I also would like to suggest that our securities laws--in
particular, our 1934 Securities Exchange Act, and Rule
10b-5 promulgated under it--be put to greater use. That rule, as people
are aware, prohibits ``any untrue statement of material fact,'' as well
as any omission of material fact.
As we go through the annual reports and offering statements of
publicly traded corporations, we should ask whether they are disclosing
to their shareholders, and potential shareholders, that their supply
chains may indeed be compromised by forced labor, in violation of U.S.
law. Are they disclosing the potential loss of goodwill and harm to
reputation which a company revealed to be benefiting from forced labor
in their supply chain may undergo, to the detriment of share price?
To date, many corporations seem to be relying on these social
audits to shield themselves from potential liability--social audits
that today's hearing, along with the good work that has been done by
several of our witnesses, will show to be works of near fiction when it
comes to accurately portraying the state of labor in the People's
Republic of China.
Compliance departments take note. As well as the law and accounting
firms that sign off on corporate disclosures.
Following this hearing, I intend to write to the Securities and
Exchange Commission--and I invite my Commissioner colleagues to join
me--to ask that the SEC review disclosures by publicly traded companies
to assess whether they contain any material misstatements or omissions
with regard to forced labor in their supply chains--and if they do, to
take enforcement action against them, levying fines.
While the SEC proposed rules in May 2022 to clarify how investment
funds may promote adherence to voluntary ``Environmental, Social, and
Governance,'' or ESG, standards--another fig leaf utilized by
corporations to signal their virtue to consumers but which remain
untethered to objective criteria--this is only a tentative first step
that emphasizes the ``E'' in ESG and is addressed to investment funds,
doing little to confront the issue of forced labor in supply chains.
Further, if corporations are not policing themselves, and the SEC
is slow in responding, then I hope the plaintiffs' bar will help
discipline these companies seeking to recover any loss in shareholder
value that results from the exposure of corporate audit-washing.
Finally, I also anticipate a future hearing wherein we invite
auditing companies, such as the Loning company implicated in the
Volkswagen scandal that we will hear about shortly, as well as
whistleblowers and lowest-price retailers such as Walmart, to testify.
______
Prepared Statement of Hon. Jeff Merkley
Thank you, Chairman Smith, for scheduling this important hearing.
For two decades this Commission has reported on how the Chinese
government's failure to provide basic human rights protections has had
a detrimental effect on the lives of the people living in China.
Today, we are focusing on the fact that this same lack of
protection has a negative impact on American consumers. This is not a
new story. We have known for years that substandard worker rights and
lack of transparency in China have resulted in defective imports, such
as lead-based toys used by American children.
Our first witness, Deputy Undersecretary Thea Lee, who serves as a
member of this Commission, has been a long-time expert and champion on
this issue.
Four years ago, this Commission, based on the research of another
of our witnesses, Adrian Zenz, and others, published a report showing
how products made with the forced labor of Uyghurs and other Turkic
peoples in China were coming into the United States. The fruit of this
research was the Uyghur Forced Labor Prevention Act, which banned
imports of such goods and helped spark a much wider awareness of the
need to rid our supply chains of forced labor.
Key to the effort to know whether a supply chain is clean are the
audits performed on the companies who are part of that chain. In 2021,
the Biden administration issued the Xinjiang Supply Chain Business
Advisory, which assessed that ``in and of themselves, third-party
audits are not a sufficient due diligence program, and may not be a
credible source of information for indicators of labor abuses in the
region.'' With the enactment of our Uyghur Forced Labor Prevention Act,
this warning became a hard reality for companies importing from China.
They had to provide ``clear and convincing evidence'' that their
products were not made with Uyghur forced labor.
This is the core question for today's hearing: Are the audits that
importers must cite to meet the law's standard reliable, do they have
integrity, or are they even genuine? Are reliable audits even possible
in an environment where the Chinese government does not allow workers
to speak freely, harasses auditors conducting due diligence in
Xinjiang, and prevents auditors from obtaining information needed for
their job?
If a company cannot say with precise certainty, to our government,
to its shareholders, and most importantly to American consumers, that
its products do not contain forced labor, then it needs to stop doing
business there.
Let's remember that our aim is not to punish companies simply
because they do business in China. Our goal is to improve the human
rights situation in China so that businesses can certify to us that
their supply chain is free of forced labor and that their suppliers
provide good working conditions and wages to their workers. And we ask
these companies to partner with us in working toward that goal.
We have an impressive set of witnesses and I look forward to
hearing their analysis and recommendations.
Thank you.
______
Prepared Statement of Hon. James P. McGovern
Good morning. I join my colleagues in welcoming our witnesses and
the public to today's hearing on audits and certification of supply
chains in China.
This hearing continues the work the Congressional-Executive
Commission on China has done to shine a light on the use of forced
labor by the People's Republic of China and to ensure that Congress is
doing everything it can to bring an end to the practice.
We are motivated by the terrible toll of forced labor on those
subjected to it, especially the Uyghur people of Xinjiang, and by its
impact on Americans. U.S. consumers should not have to worry about
whether the products they purchase are tainted by forced labor from
China. U.S. workers and producers should not have to compete with
companies that rely on forced labor.
Congress took a major step in 2021 by passing the bipartisan Uyghur
Forced Labor Prevention Act (UFLPA), legislation that I was privileged
to lead. The UFLPA creates a rebuttable presumption that all goods
produced in the Xinjiang region of China are made with forced labor.
This means the burden of proof lies with those who want to import goods
into the U.S. to show that their supply chains are free of forced
labor.
The logic behind the law was that it would create incentives for
stakeholders, including the PRC, to change their practices. The good
news is that companies have responded by implementing their economic,
social, and governance, or ESG, policies and contracting social
compliance audits to certify that the supply chains for their products
are free of forced labor.
The problem, as we will hear today, is that even when these audits
conform with industry-wide ESG standards, they may not be reliable in
the Chinese context. This is both because the companies themselves pay
for the audits and have a financial stake in clean findings, and
because the PRC, instead of correcting course and ending the use of
forced labor, has chosen to retaliate against those who do the audits
or who cooperate with the auditors.
I want to be clear on this point: The PRC government could react to
the worldwide concern that has been raised about its use of forced
labor by taking the opportunity to end the practice--which, by the way,
would be consistent with its obligations under International Labor
Organization conventions, all of which China has ratified.
Instead, since 2021 the PRC has adopted laws, regulations, and
practices that seem designed to limit the effectiveness of social
audits in detecting the presence of forced labor in supply chains.
One example is an anti-foreign sanctions law that has been used at
least once to go after a U.S. due diligence firm for collecting
``Xinjiang-related sensitive information.'' A second is a broadened
definition of espionage that came into play when PRC authorities
detained staff at another due diligence firm that was reported to be
conducting investigations into forced labor in supply chains linked to
Xinjiang.
Of 29 firms listed by Social Accountability International as
qualified to conduct certification inspections of manufacturers in
China, five have announced they will no longer conduct social audits in
Xinjiang because conditions simply do not allow them to do so.
In light of this, our question today is what more Congress can do
to help reinforce the incentives in the UFLPA. Are there steps we could
take to strengthen the integrity of auditing mechanisms and make them
more independent? Are there other ways to foster increased transparency
of supply chains that do not backfire on those who try to do the right
thing?
Let me close by emphasizing that we are not here to force companies
to leave China (our consistent goal is to help improve the human rights
situation in China), but there is a possibility that the PRC's response
so far to the global condemnation of its use of forced labor could lead
companies to decide on their own that it is too risky to do business in
China because the lack of human rights protections doesn't allow them
to reliably comply with their own ESG policies.
Thank you.
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Witness Biographies
Thea Lee, Deputy Undersecretary of Labor for International Affairs
Thea Lee was named Deputy Undersecretary of Labor for International
Affairs on May 10, 2021. She has been advocating for workers' rights,
both domestically and internationally, for over thirty years. She was
president of the Economic Policy Institute, a pro-worker Washington
think tank, from January 2018 to May 2021, and an international trade
economist at EPI in the 1990's.
From 1997 to 2017, Deputy Undersecretary Lee worked at the AFL-CIO,
a voluntary federation of 56 national and international labor unions
that represent 12.5 million working men and women. At the AFL-CIO, she
served as deputy chief of staff, policy director, and chief
international economist.
Ms. Lee has served on the State Department Advisory Committee on
International Economic Policy, the Export-Import Bank Advisory
Committee, and on the boards of directors of the National Bureau of
Economic Research, the congressional Progressive Caucus Center, the
Center for International Policy, and the Coalition on Human Needs,
among others. She served on the U.S.-China Economic and Security Review
Commission from 2018 to 2020. In 2022, she was appointed to the
Congressional-Executive Commission on China.
Thea Lee holds a master's degree in economics from the University
of Michigan at Ann Arbor and a bachelor's degree in economics cum laude
from Smith College.
Scott Nova, Executive Director, Worker Rights Consortium
Scott Nova is Executive Director of the Worker Rights Consortium,
an independent labor rights monitoring organization that has conducted
investigations of working conditions in factories around the world,
including in China, Vietnam, Myanmar, and other countries where severe
restrictions on civil society pose special obstacles to labor rights
inquiry.
Mr. Nova is a leading expert on the methodological aspects of labor
rights investigation and on the practices and performance of corporate
social auditors. He has written and spoken widely on the intersection
of international commerce and worker rights.
Adrian Zenz, Senior Fellow and Director in China Studies, Victims
of Communism Memorial Foundation
Dr. Adrian Zenz is Director in China Studies at the Victims of
Communism Memorial Foundation, Washington, DC. His research focus is on
China's ethnic policy, Beijing's campaign of mass internment,
securitization and forced labor in the Xinjiang Uyghur Autonomous
Region, public recruitment and coercive poverty alleviation in Tibet
and Xinjiang, and China's domestic security budgets.
Dr. Zenz is the author of `Tibetanness' Under Threat. He has played
a leading role in the analysis of leaked Chinese government documents,
including the ``China Cables,'' the ``Karakax List,'' the ``Xinjiang
Papers,'' and the ``Xinjiang Police Files.''
Jim Wormington, Senior Researcher and Advocate on Corporate
Accountability, Human Rights Watch
Jim Wormington is a senior researcher and advocate in the Economic
Justice and Rights Division at Human Rights Watch, where he works on
extractive industries, supply chains, and other issues related to
corporate accountability. He was previously a researcher in Human
Rights Watch's Africa Division, covering human rights issues in West
Africa. He is an English-trained barrister, a past member of QEB Hollis
Whiteman Chambers, and was educated at Cambridge University (MA) and
New York University School of Law (LLM). He recently co-authored the
report, ``Asleep at the Wheel: Car Companies' Complicity in Forced
Labor in China.''